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VOLUME 9
PAGES 1697 - 2036
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
FRIDAY, MAY 12, 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
1698
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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1 I N D E X
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3 DEFENDANTS' WITNESSES PAGE VOL.
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ROSSE, JAMES (RECALLED)
5 REDIRECT EXAMINATION BY MR. CONNELL 1730 9
RECROSS-EXAMINATION BY MR. SHULMAN 1745 9
6 REDIRECT EXAMINATION BY MR. BALABANIAN 1768 9
7 BENNACK, FRANK A.
DIRECT EXAMINATION BY MR. CONNELL 1771 9
8 CROSS-EXAMINATION BY MR. ALIOTO 1829 9
9 IRISH, GEORGE B.
DIRECT EXAMINATION BY MR. CONNELL 1984 9
10 CROSS-EXAMINATION BY MR. ALIOTO 1991 9
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PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
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7 141 2002 9
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1 FRIDAY, MAY 12, 2000 8:40 A.M.
2 THE CLERK: CALLING CIVIL 2000-119, CLINTON REILLY
3 VS. THE HEARST CORPORATION, ET AL., FOR TRIAL.
4 COUNSEL, YOUR APPEARANCES FOR THE RECORD.
5 MR. HALLING: GARY HALLING FOR THE HEARST
6 CORPORATION.
7 MR. ROSCH: TOM ROSCH FOR CHRONICLE PUBLICATION.
8 MR. BALABANIAN: DAVID BALABANIAN FOR EXIN, LLC.
9 MR. SHULMAN: DANIEL SHULMAN FOR THE PLAINTIFFS.
10 THE COURT: VERY WELL. GOOD MORNING, COUNSEL.
11 MR. HALLING: GOOD MORNING, YOUR HONOR.
12 THE COURT: I UNDERSTAND THAT YOU'VE RELAYED SOME
13 INFORMATION TO THE CLERK ABOUT THE SCHEDULE FOR THE REMAINDER
14 OF THIS CASE.
15 IT IS MY UNDERSTANDING THAT ALL COUNSEL BELIEVE THAT
16 THE REMAINING WITNESSES SHOULD BE ABLE TO BE PRESENTED TODAY
17 AND ON MONDAY. AND WITH THAT AMOUNT OF TRIAL TIME, THAT SHOULD
18 BE SUFFICIENT FOR THE SUBMISSION OF ALL EVIDENCE IN THE CASE.
19 IT IS FURTHER MY UNDERSTANDING THAT YOU DO NOT AGREE
20 ON WHETHER TO HAVE CLOSING ARGUMENTS OR POST-TRIAL BRIEFS OR
21 SOME COMBINATION OF THE TWO.
22 MR. HALLING: YOUR HONOR, I AM NOT SURE THAT'S
23 ACCURATE. IF I MAY, I THINK WE ARE CLEAR THAT THE TRIAL WILL
24 BE COMPLETED BY THE END OF TODAY OR, IF IT SPILLS OVER, BY
25 MONDAY MORNING. WE THINK THERE IS A CHANCE, REALISTICALLY, TO
1702
1 BE DONE TODAY.
2 IN TERMS OF BRIEFING, I THINK WE DO AGREE THERE
3 SHOULD BE AN ARGUMENT. OUR POSITION IS THAT IT WILL BE MORE
4 USEFUL IF IT OCCURRED AFTER THE BRIEFING RATHER THAN BEFORE.
5 WE DO DISAGREE ON THE LENGTH OF TIME FOR THE
6 BRIEFING. WE WOULD PREFER A SHORTER PERIOD, AND WE HAVE A
7 SPECIFIC PROPOSAL, AND I UNDERSTAND FROM MR. SHULMAN THEY WOULD
8 LIKE QUITE A BIT LONGER.
9 THE COURT: I AM INCLINED TO AWAIT UNTIL AFTER THE
10 COMPLETION OF ALL OF THE EVIDENCE TO MAKE A DECISION ON HOW THE
11 CASE IS ARGUED AND BRIEFED AT THE CONCLUSION.
12 MR. HALLING: OKAY.
13 THE COURT: BUT WHAT I HAVE DONE IN THE MEANTIME IS
14 TO POSTPONE THE CRIMINAL TRIAL THAT I MENTIONED YESTERDAY,
15 WHICH WAS DUE TO START ON MONDAY, UNTIL -- WE POSTPONED THAT
16 UNTIL TUESDAY MORNING. AND WE WILL BEGIN JURY SELECTION IN
17 THAT CASE ON TUESDAY MORNING.
18 SO, IN ESSENCE, ALTHOUGH I DON'T WANT TO GIVE YOU
19 TIME AVAILABLE WHICH YOU CAN THEN FILL, NONETHELESS, WE HAVE,
20 OF COURSE, ALL OF TODAY AND, IF NEED BE, ALL OF MONDAY.
21 NOW, IF YOU CAN COMPLETE THE PRESENTATION OF THE
22 EVIDENCE TODAY OR LESS THAN ALL OF MONDAY, THAT WILL BE FINE.
23 BUT IT DOES APPEAR THAT THAT ALLOCATION OF TIME TO THIS TRIAL
24 SHOULD BE SUFFICIENT TO SUBMIT ALL OF THE EVIDENCE TO BE
25 PRESENTED.
1703
1 AND WHEN THAT IS DONE, THEN I WILL HAVE A LITTLE
2 BETTER HANDLE ON HOW MUCH ADDITIONAL TIME WE NEED, AND THE
3 SCHEDULE SHOULD BE ALLOTTED THEN FOR BRIEFING AND ARGUMENT OF.
4 I THINK IT WOULD BE HELPFUL TO HAVE SOME POST-TRIAL
5 BRIEFING AND SOME ARGUMENT. BUT EXACTLY WHAT COMBINATION OF
6 THE TWO, I THINK, IT MIGHT BE BETTER TO DECIDE AFTER ALL OF THE
7 EVIDENCE IS IN.
8 MR. ROSCH: YOUR HONOR, MAY I JUST SAY ONE THING?
9 AND THIS IS ON BEHALF OF CHRONICLE ONLY.
10 YOUR HONOR HAS PUT ENORMOUS PRESSURE ON YOURSELF --
11 PERHAPS THE PUBLIC DOESN'T KNOW THAT, BUT WE IN THE LITIGATING
12 BAR KNOW THAT IT'S EXTRAORDINARY TO GET ON THE CALENDAR THIS
13 QUICKLY AND TO HAVE THIS MUCH TRIAL TIME.
14 NOW, WHAT WE AT CHRONICLE ASK THE COURT TO DO, IF
15 THE COURT DECIDES YOU WANT BRIEFING AND ORAL ARGUMENT, IS TO
16 PUT THE PRESSURE ON US. AS YOU KNOW, WE HAVE SOME IMPERATIVES
17 AT CHRONICLE. BUT PART -- QUITE APART FROM THAT THERE ARE A
18 LOT OF PEOPLE WHO ARE UP IN THE AIR AT THESE NEWSPAPERS AT THE
19 PRESENT TIME.
20 SO, AGAIN, WITHOUT SUGGESTING ANYTHING SPECIFIC, I
21 WOULD URGE THE COURT JUST TO PUT THE PRESSURE ON US AND MAKE US
22 GET THIS DONE QUICKLY.
23 THE COURT: WELL, YOU DON'T HAVE TO INVITE ME TO PUT
24 PRESSURE ON LAWYERS, MR. ROSCH.
25 MR. ROSCH: THANK YOU.
1704
1 (LAUGHTER)
2 THE COURT: THAT'S AN INVITATION I AM ALWAYS HAPPY
3 TO ACCEPT.
4 MR. ROSCH: THANK YOU.
5 MR. HALLING: THANK YOU, YOUR HONOR.
6 THE COURT: ALL RIGHT. ANYTHING FURTHER BEFORE WE
7 RESUME WITH DR. ROSSE'S TESTIMONY?
8 MR. ALIOTO: WE HAD -- WE RECEIVED -- IF IT PLEASE
9 YOUR HONOR, WE RECEIVED A PRIVILEGE LOG FROM THE DEFENDANTS
10 YESTERDAY MORNING. AND WE THINK THAT THERE ARE SOME DOCUMENTS
11 IN THAT PRIVILEGE LOG THAT SHOULD BE PRODUCED, AND WE WOULD
12 LIKE TO TAKE IT UP WITH THE COURT AT THE RECESS -- OR NOW IF
13 THE COURT WANTS TO DO IT NOW.
14 THE COURT: WELL --
15 MR. ALIOTO: OR AT ANY TIME.
16 THE COURT: I WONDER IF WE SHOULDN'T COMPLETE
17 DR. ROSSE'S TESTIMONY.
18 MR. ALIOTO: OKAY.
19 THE COURT: AND THEN TAKE UP THAT MATTER.
20 MR. ALIOTO: THANK YOU.
21 THE COURT: ALL RIGHT. FIRST OFF, DR. ROSSE, YOU
22 UNDERSTAND THAT YOU ARE STILL UNDER THE OATH THAT YOU TOOK
23 YESTERDAY?
24 THE WITNESS: I CERTAINLY DO.
25 THE COURT: AND THAT OATH APPLIES TO THIS TESTIMONY,
1705
ROSSE - CROSS / SHULMAN
1 AS WELL AS YOUR TESTIMONY YESTERDAY.
2 THE WITNESS: OF COURSE.
3 THE COURT: THANK YOU.
4 MR. SHULMAN, YOU MAY PROCEED.
5 MR. SHULMAN: THANK YOU.
6 JAMES ROSSE,
7 CALLED AS A WITNESS FOR THE DEFENDANTS, HAVING BEEN PREVIOUSLY
8 DULY SWORN, TESTIFIED FURTHER AS FOLLOWS:
9 CROSS-EXAMINATION (RESUMED)
10 BY MR. SHULMAN:
11 Q. DR. ROSSE, I BELIEVE YOU SAID YESTERDAY WHEN YOU WERE ON
12 DIRECT EXAMINATION THAT YOU BELIEVE DR. COMANOR MADE HIS
13 DETERMINATION OF THE RELEVANT MARKET RELYING ON -- ALMOST
14 ENTIRELY ON LEGAL AUTHORITIES; IS THAT YOUR TESTIMONY?
15 A. YES, IN PART. I WAS RELYING ON THE -- THE QUESTION THAT
16 OCCURRED IN HIS DEPOSITION IN WHICH WHEN HE WAS ASKED WHAT --
17 WHAT HE DID WHEN HE WAS -- WHEN HE WAS ASKED TO DEFINE THE
18 MARKET, HE SAID THE FIRST THING HE DID WAS CHECK THE RELEVANT
19 CASE LAW.
20 Q. WELL, YOU KNOW THAT WHEN HE TESTIFIED HERE IN THIS TRIAL
21 THAT THE QUESTION OF LEGAL AUTHORITIES DIDN'T COME UP UNTIL HIS
22 CROSS-EXAMINATION. ARE YOU AWARE OF THAT?
23 A. I DON'T RECALL THAT SPECIFICALLY.
24 Q. YOU ALSO SAID THAT YOU WERE ASKED ABOUT THE PRICE YOU PAID
25 FOR THE MOVIES. DO YOU REMEMBER THAT?
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ROSSE - CROSS / SHULMAN
1 A. YES, I DO.
2 Q. AND THAT, AS A -- AS A PERSON OVER 60, YOU PAY A DIFFERENT
3 PRICE FROM PERSONS UNDER THAT AGE AND ALSO DIFFERENT FROM
4 CHILDREN, RIGHT?
5 A. CORRECT.
6 Q. OKAY. NOW -- AND YOU SAID THAT THAT IN NO WAY INDICATED
7 TO YOU THERE WERE SEPARATE MARKETS, RIGHT?
8 A. THAT'S CORRECT.
9 Q. OKAY. NOW, SUPPOSE THAT YOU WENT TO SEE A MOVIE IN SAN
10 FRANCISCO AND YOU WERE CHARGED A PRICE OF $5 AND THEN YOU LIKED
11 THE MOVIE SO MUCH YOU WENT TO SEE THE SAME PICTURE IN OAKLAND
12 AND YOU WERE CHARGED 7.50, AND YOU LIKED THE MOVIE SO MUCH THAT
13 YOU WENT TO SEE IT AGAIN IN SAN JOSE AND YOU WERE CHARGED $10.
14 WOULD THAT TEND TO INDICATE TO YOU THAT THOSE WERE
15 SEPARATE MARKETS?
16 A. YES.
17 Q. YOU ALSO ARE AWARE THAT THE CHRONICLE AND THE EXAMINER
18 HAVE 93 TO 97 PERCENT OF DAILY CIRCULATION -- NEWSPAPER
19 CIRCULATION WITHIN THE CITY OF SAN FRANCISCO, CORRECT?
20 A. THAT'S WHAT THE STATISTICS SHOW, THAT'S CORRECT.
21 Q. OKAY. AND THAT IS NOT VERY SURPRISING TO YOU, IS IT?
22 A. NOT PARTICULARLY, NO.
23 Q. AND THAT'S BECAUSE IN YOUR VIEW PEOPLE WHO LIVE IN SAN
24 FRANCISCO DON'T HAVE VERY MUCH INTEREST IN THE CONTRA COSTA
25 TIMES, FOR INSTANCE, OR THE VALLEY TIMES OR ANY OTHER PAPERS,
1707
ROSSE - CROSS / SHULMAN
1 CORRECT?
2 A. WELL, THEY HAVE AN INTEREST IN NATIONAL NEWSPAPERS, AND
3 SOME OF THEM WILL HAVE INTEREST IN OTHER PAPERS. BUT MOST
4 RESIDENTS OF SAN FRANCISCO WILL BE CONCERNED ABOUT THE LOCAL
5 AFFAIRS AND THE REGIONAL AFFAIRS THAT ARE CENTERED AROUND SAN
6 FRANCISCO.
7 Q. AND PEOPLE WHO ARE IN THE CITY OF SAN FRANCISCO, WHEN THEY
8 WANT NEWS, THEY GO TO THE NEWSPAPERS THAT ARE PUBLISHED IN SAN
9 FRANCISCO, CORRECT?
10 A. THEY WILL PROBABLY MORE OFTEN GO TO THE TELEVISION NEWS
11 FIRST, AND THEN THEY WOULD GO TO THE SAN FRANCISCO NEWSPAPERS,
12 BOTH WEEKLIES AND DAILIES, BUT PRIMARILY DAILIES.
13 Q. AND --
14 A. AND ALSO -- I FORGOT RADIO. RADIO IS A LIKELY SOURCE OF
15 NEWS FOR MANY PEOPLE, ESPECIALLY DURING COMMUTING HOURS.
16 Q. WHEN PEOPLE IN SAN FRANCISCO WANT NEWS FROM DAILY
17 NEWSPAPERS, THEY GO TO THE SAN FRANCISCO NEWSPAPERS, DO THEY
18 NOT?
19 A. THAT'S CORRECT.
20 Q. AND THAT'S BECAUSE THOSE NEWSPAPERS ARE FOCUSED ON SAN
21 FRANCISCO EVENTS, SAN FRANCISCO NEWS AND SAN FRANCISCO
22 INFORMATION THAT'S PARTICULARLY RELEVANT TO READERS IN SAN
23 FRANCISCO, CORRECT?
24 A. IN SAN FRANCISCO AND IN THE GENERAL -- AND THE REGIONS
25 CENTERED AROUND SAN FRANCISCO, YES.
1708
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1 Q. AND STUFF THAT'S PUBLISHED ELSEWHERE IS OF LESS INTEREST?
2 A. NOT NECESSARILY "STUFF." LOCAL NEWS PUBLISHED ELSEWHERE
3 IS OF LESSER INTEREST.
4 Q. SO -- AND THAT'S PART OF THE REASON THAT IN YOUR VIEW THE
5 NOTES -- THE NEWSPAPER BUSINESS IN THIS COUNTRY IS LARGELY A
6 LOCAL BUSINESS?
7 A. THAT'S CORRECT.
8 Q. NOW, YOU SAID -- I WANT TO ASK YOU SOME OF YOUR -- ABOUT
9 SOME OF YOUR VIEWS CONCERNING COMPETITION THAT THE CHRONICLE
10 MIGHT FACE.
11 AND I THINK IT'S YOUR VIEW -- IN FACT, YOU HAVE A
12 STRONG OPINION -- THAT THE EXAMINER EITHER AS A WEEKDAY ONLY
13 PUBLICATION OR IN COMBINATION WITH THE SUNDAY EDITION COULD NOT
14 SURVIVE NOW OR IN THE FUTURE AS A FREE-STANDING GENERAL
15 CIRCULATION DAILY NEWSPAPER IN COMPETITION WITH THE CHRONICLE.
16 IS THAT CORRECT?
17 A. THAT'S CORRECT.
18 Q. AND THAT'S SO EVEN IF SOMEONE WERE TO MAKE THE SIGNIFICANT
19 INVESTMENT NEEDED TO MOVE THE EXAMINER TO A MORNING PUBLICATION
20 WITH A SUNDAY EDITION, RIGHT?
21 A. THAT'S CORRECT.
22 Q. AND BY "SIGNIFICANT INVESTMENT," WHAT DO YOU MEAN?
23 A. IT DEPENDS -- THERE ARE MANY WAYS OF DOING THAT. ONE
24 COULD DO IT BY BUILDING AN APPROPRIATE PRINTING PLANT AND
25 GETTING THE BUILDINGS AND PUTTING -- BUYING ALL OF THE
1709
ROSSE - CROSS / SHULMAN
1 EQUIPMENT AND EVERYTHING ELSE TO DO IT.
2 ALTERNATIVELY, ONE COULD DO IT BY USING COMMERCIAL
3 SOURCES FOR MUCH OF THAT AND DO IT FOR MUCH -- FOR MUCH LESS
4 MONEY. SO THE AMOUNT OF INVESTMENT DEPENDS ON HOW YOU DO IT,
5 AMOUNT OF INVESTMENT REQUIRED.
6 Q. AND I THINK IT'S YOUR VIEW, IS IT NOT, THAT THE REALITY IS
7 THAT THE ODDS AGAINST THE EXAMINER BEING ABLE TO SURVIVE AS AN
8 INDEPENDENT DIRECT COMPETITOR OF THE CHRONICLE ARE
9 ASTRONOMICAL?
10 A. THOSE ARE, I BELIEVE, MY EXACT WORDS IN THE PARTICULAR
11 REGION.
12 Q. CORRECT. SO, AS FAR AS YOU ARE CONCERNED, THE BOTTOM LINE
13 IS THAT THE EXAMINER IS INCAPABLE OF SURVIVING AS A
14 FREE-STANDING, SELF-SUPPORTING DAILY NEWSPAPER COMPETING ACROSS
15 THE BOARD WITH THE CHRONICLE FOR GENERAL CIRCULATION AND
16 ADVERTISING IN THE SAN FRANCISCO AREA; ISN'T THAT TRUE?
17 A. THAT'S CERTAINLY TRUE.
18 Q. AND WITH REGARD TO MR. FANG, IF HE TRIED TO -- WELL,
19 YOU'VE READ THE -- THE DECLARATIONS OF THE -- OF MR. REILLY'S
20 EXPERTS IN THIS CASE, RIGHT?
21 A. NOT ALL OF THEM BUT SEVERAL OF THEM, YES.
22 Q. YOU ARE AWARE OF THEIR OPINION THAT IT WOULD TAKE A
23 SUBSIDY OF AT LEAST $50 MILLION A YEAR FOR THE EXAMINER TO HAVE
24 A CHANCE UNDER MR. FANG COMPETING DIRECTLY AGAINST THE
25 CHRONICLE?
1710
ROSSE - CROSS / SHULMAN
1 A. I DON'T BELIEVE THAT'S THE TESTIMONY I HEARD. I BELIEVE
2 THE TESTIMONY I HEARD WAS THAT IT WOULD TAKE AT LEAST
3 50 MILLION A YEAR TO PRODUCE A PAPER THAT WAS ABLE TO COMPETE
4 DIRECTLY WITH THE CHRONICLE.
5 Q. WELL, YOU ARE AWARE OF THEIR OPINION THAT THE -- THE
6 OPINION OF THE EXPERTS OF MR. REILLY THAT THE PRESENT SUBSIDY
7 BY HEARST WILL NOT BE ABLE UNDER ANY CIRCUMSTANCES TO SUPPORT
8 THE PROBABILITY OR EVEN THE POSSIBILITY OF A VIABLE PAPER WHICH
9 WOULD BE COMPETITIVE TO THE CHRONICLE?
10 A. IF YOU ARE DEFINING "COMPETITIVE" AS -- IN THE WAY IN
11 WHICH WE HAVE BEEN USING IT, THAT IS, BROADLY COMPETITIVE AS A
12 GENERAL CIRCULATION MORNING NEWSPAPER, METROPOLITAN NEWSPAPER,
13 THE ANSWER IS I AGREE WITH THAT.
14 Q. OKAY. AND YOU ARE AWARE OF THEIR OPINION THAT IN ORDER TO
15 PRODUCE A VIABLE COMPETITIVE PAPER, ANY BUYER OF THE EXAMINER
16 WOULD NEED A SUBSIDY OF $50 MILLION FOR FIVE YEARS OR A
17 ONE-TIME PAYMENT OF $250 MILLION, CORRECT?
18 A. I AM AWARE OF THAT TESTIMONY. I DISAGREE WITH IT.
19 Q. WELL, YOU DISAGREE WITH IT BECAUSE YOU DON'T THINK YOU CAN
20 PRODUCE A NEWSPAPER OF THE SIZE THAT WOULD BE COMPETITIVE WITH
21 THE CHRONICLE EVEN WITH THAT AMOUNT OF SUBSIDY. RIGHT?
22 A. THAT'S CORRECT. THAT'S MY VIEW.
23 Q. NOW, ARE YOU AWARE THAT THE JUSTICE DEPARTMENT HAS
24 ISSUED -- THAT THE JUSTICE DEPARTMENT ISSUED A PRESS RELEASE
25 AFTER HEARST ANNOUNCED ITS SALE TO THE FANGS?
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1 A. I AM AWARE THAT THE PRESS RELEASE WAS ISSUED. I HAVEN'T
2 SEEN IT.
3 Q. AND -- WELL, I WILL SHOW YOU -- I WILL SHOW IT TO YOU.
4 IT'S DEFENDANT'S EXHIBIT 940.
5 DO YOU HAVE A COPY?
6 MAY I APPROACH THE WITNESS, YOUR HONOR?
7 THE COURT: YES, YOU MAY.
8 (PAUSE IN THE PROCEEDINGS.)
9 MR. SHULMAN: DO YOU HAVE THAT ONE OR NO?
10 SHOULD I USE THE ELMO?
11 MR. HALLING: I THINK WE HAVE IT.
12 MR. SHULMAN: OKAY.
13 BY MR. SHULMAN:
14 Q. THIS IS DEFENDANT'S EXHIBIT 940 IN EVIDENCE, AND THIS IS
15 THE PRESS RELEASE OF THE DEPARTMENT OF JUSTICE AFTER THE
16 ANNOUNCEMENT OF THE SALE OF -- OR THE TRANSACTION INVOLVING THE
17 TRANSFER OF CERTAIN ASSETS OF THE EXAMINER TO THE FANGS.
18 I WANT TO DIRECT YOUR ATTENTION TO THE SECOND PAGE,
19 PAGE 2 AND THE SENTENCE THAT APPEARS AT THE VERY TOP OF THE
20 PAGE ON PAGE 2, WHICH SAYS:
21 "CONSUMERS, SUCH AS ADVERTISERS AND READERS,
22 WILL OBTAIN THE BENEFITS OF FULL COMPETITION
23 BETWEEN TWO DAILY MORNING NEWSPAPERS" -- "TWO
24 DAILY MORNING PAPERS."
25 DO YOU AGREE WITH THAT?
1712
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1 A. NO.
2 MR. CONNELL: MAY I -- BEFORE -- MAY I ASK THAT THE
3 WITNESS BE GIVEN AN OPPORTUNITY, IF HE HASN'T HAD ONE, TO READ
4 THIS ENTIRE SHORT RELEASE BEFORE HE IS ASKED TO COMMENT ON ONE
5 SENTENCE?
6 MR. SHULMAN: I THINK HE DID.
7 THE COURT: ALL RIGHT. I BELIEVE THE WITNESS HAS
8 THE DOCUMENT?
9 THE WITNESS: YES, I HAVE.
10 THE COURT: ALL RIGHT. HAVE YOU HAD A CHANCE TO
11 READ IT?
12 THE WITNESS: I SCANNED THROUGH IT QUICKLY.
13 THE COURT: ALL RIGHT, WELL, SCAN THROUGH IT FROM
14 BEGINNING TO END.
15 THE WITNESS: (WITNESS READING DOCUMENT) YES.
16 THE COURT: HAVE YOU READ IT?
17 THE WITNESS: I HAVE READ IT.
18 THE COURT: OKAY. GO AHEAD, MR. SHULMAN.
19 BY MR. SHULMAN:
20 Q. OKAY. THE QUESTION WAS -- AND I THINK YOU ANSWERED -- DO
21 YOU AGREE WITH THE STATEMENT BY THE DEPARTMENT OF JUSTICE THAT
22 CONSUMERS, SUCH AS ADVERTISERS AND READERS, WILL OBTAIN THE
23 BENEFITS OF FULL COMPETITION BETWEEN TWO DAILY MORNING PAPERS?
24 A. I DON'T AGREE WITH IT IF I INTERPRET "FULL" AS I WOULD
25 ORDINARILY INTERPRET IT IN COMMON LANGUAGE USED. I AGREE WITH
1713
ROSSE - CROSS / SHULMAN
1 THE STATEMENT IF THE WORD "FULL" IS TAKEN OUT, IF IT READS,
2 "CONSUMERS, SUCH AS ADVERTISERS AND READERS, WILL OBTAIN THE
3 BENEFITS OF COMPETITION BETWEEN TWO DAILY MORNING NEWSPAPERS."
4 I THINK THAT'S A TRUE STATEMENT.
5 Q. BUT IF IT'S "FULL COMPETITION," THEN THE STATEMENT IS
6 FALSE IN YOUR OPINION?
7 A. IT DEPENDS ON WHAT MR. KLEIN MEANT BY "FULL." IF HE MEANT
8 WHAT I THINK HE MEANT BY IT, THEN I DON'T AGREE WITH THAT
9 STATEMENT.
10 Q. LET ME DIRECT YOUR ATTENTION TO SOME STATEMENTS THAT --
11 THE COURT: LET ME JUST CLARIFY THAT.
12 MR. SHULMAN: GO AHEAD.
13 THE COURT: YOU SAID, "MR. KLEIN MEANT WHAT I THINK
14 HE MEANT." BUT PUT IT IN CONTEXT OF WHAT YOU MEAN BY "FULL
15 COMPETITION."
16 THE WITNESS: CERTAINLY. I WOULD INTERPRET THAT AS
17 MEANING FULL METROPOLITAN FACE-TO-FACE DAILY NEWSPAPER
18 COMPETITION.
19 THE COURT: AND I GATHER YOUR TESTIMONY IS THAT THE
20 SPINOFF OF THE EXAMINER ASSETS TO THE FANG GROUP WILL NOT
21 RESULT IN THAT KIND OF FULL COMPETITION; IS THAT CORRECT?
22 THE WITNESS: THAT'S CORRECT, YOUR HONOR.
23 BY MR. SHULMAN:
24 Q. OKAY. LET ME DIRECT YOUR ATTENTION TO SOME STATEMENTS
25 THAT WERE MADE BY HEARST IN ITS OPPOSITION OF DEFENDANT THE
1714
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1 HEARST CORPORATION TO PLAINTIFFS'S MOTION FOR A PRELIMINARY
2 INJUNCTION. THERE IS A STATEMENT BY HEARST WHICH SAYS, QUOTE:
3 "PAN ASIA INTENDS TO MOVE THE EXAMINER TO
4 MORNING PUBLICATION AND OPERATE AS A
5 FREE-STANDING DAILY NEWSPAPER IN DIRECT
6 COMPETITION WITH THE CHRONICLE."
7 DO YOU THINK THAT PAN ASIA WILL BE ABLE TO OPERATE
8 THE EXAMINER AS A FREE-STANDING DAILY NEWSPAPER IN DIRECT
9 COMPETITION WITH THE CHRONICLE?
10 A. THAT'S A DIFFICULT QUESTION TO ANSWER BECAUSE IT HINGES ON
11 WHAT YOU MEAN BY "DIRECT." I WOULD NOT USE "DIRECT" IN THAT
12 CONTEXT, BUT PERHAPS OTHERS WOULD.
13 Q. OKAY. AND LET ME GIVE YOU ANOTHER STATEMENT BY HEARST IN
14 THE SAME MEMORANDUM. IT SAYS, QUOTE:
15 "PAN ASIA HAS ANNOUNCED THAT IT INTENDS TO
16 PUBLISH THE EXAMINER AS A REGULAR
17 SUBSCRIPTION-BASED, PAID DAILY NEWSPAPER AND
18 SWITCH THE EXAMINER TO MORNING PUBLICATION TO
19 COMPETE DIRECTLY WITH THE CHRONICLE."
20 MR. CONNELL: MR. HALLING, COULD YOU TELL ME WHERE
21 YOU ARE READING FROM?
22 MR. SHULMAN: YES, I AM READING FROM PAGE 5 AT LINE
23 3.
24 MR. CONNELL: LINE WHAT?
25 MR. SHULMAN: LINE 3.
1715
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1 THE WITNESS: SAME ANSWER, SAME WORD.
2 MR. ALIOTO: DAN?
3 (PAUSE IN THE PROCEEDINGS.)
4 BY MR. SHULMAN:
5 Q. DO YOU AGREE OR DISAGREE WITH THE -- THAT THE EXAMINER --
6 THAT THE FANGS CAN PUBLISH THE EXAMINER AS A REGULAR
7 SUBSCRIPTION-BASED, PAID DAILY NEWSPAPER AND SWITCH THE
8 EXAMINER TO MORNING PUBLICATION TO COMPETE DIRECTLY WITH THE
9 CHRONICLE?
10 A. IT ALL -- TO REPEAT THE ANSWER THAT I GAVE BEFORE, IF YOU
11 INTERPRET "DIRECT" MEANING WILL IT BE COMPETITIVE, WILL IT BE
12 COMPETING WITH THE CHRONICLE, THE ANSWER IS YES. IF YOU
13 INTERPRET "DIRECT" TO MEAN WILL IT BE A FULL GENERAL
14 CIRCULATION NEWSPAPER COMPETING ACROSS THE BOARD AGAINST THE
15 EXAMINER -- THE CHRONICLE, THE ANSWER IS NO.
16 Q. OKAY.
17 A. SO IT HINGES ON WHAT YOU MEAN BY "DIRECT."
18 Q. WE WILL HAVE TO ASK HEARST. I AM READING FROM THEIR
19 BRIEF.
20 LET ME DIRECT YOUR ATTENTION TO PAGE -- TO LINE 19,
21 SAME PAGE. IT SAYS, QUOTE:
22 "ALSO PAN ASIA CLAIMS THE NEW EXAMINER WILL
23 BE THE FIRST MAJOR ASIAN AMERICAN OWNED
24 METROPOLITAN DAILY IN THE UNITED STATES."
25 DO YOU AGREE THAT THE EXAMINER WILL BE A
1716
ROSSE - CROSS / SHULMAN
1 METROPOLITAN OWNED DAILY NEWSPAPER -- A METROPOLITAN DAILY
2 NEWSPAPER?
3 A. I DON'T AGREE WITH THE ORDER OF THE WORDS IN THAT CASE.
4 IT WILL BE A PAPER PUBLISHED IN A METROPOLITAN AREA. IT WILL
5 NOT BE, AS I WOULD DESCRIBE, A METROPOLITAN DAILY NEWSPAPER IN
6 THE SAME SENSE AS THE CHRONICLE IS.
7 Q. ALL RIGHT. THE STATEMENT ON PAGE 21 OF THE SAME
8 MEMORANDUM, LINE 8. IT SAYS, QUOTE:
9 "HEARST PURCHASE OF THE CHRONICLE AND PAN
10 ASIA'S ACQUISITION OF THE EXAMINER WILL
11 DRAMATICALLY INCREASE BOTH LOCAL AND REGIONAL
12 DAILY NEWSPAPER COMPETITION IN THE SAN FRANCISCO
13 AREA FOR THE BENEFIT OF CONSUMERS, INCLUDING
14 MR. REILLY."
15 DO YOU AGREE OR DISAGREE WITH THAT?
16 A. I AGREE -- THERE IS A LITTLE HYPERBOLE WITH THAT BUT I
17 AGREE WITH THE THRUST OF THE STATEMENT.
18 Q. DO YOU AGREE THAT THE PAN ASIA'S ACQUISITION OF THE
19 EXAMINER WILL DRAMATICALLY INCREASE REGIONAL NEWSPAPER
20 COMPETITION IN THE SAN FRANCISCO AREA?
21 A. YES, BECAUSE IT WILL PERMIT THE CHRONICLE TO BE A MUCH
22 MORE VIGOROUS COMPETITOR IN THE AREA THAN IT NOW IS.
23 Q. BUT NOT FANG, RIGHT?
24 A. I DON'T BELIEVE MR. FANG INTENDS TO COMPETE REGIONALLY.
25 Q. NOW, I THINK YOU ALSO TESTIFIED THAT, IN YOUR OPINION,
1717
ROSSE - CROSS / SHULMAN
1 UNDER THE PRESENT JOA THERE IS NO ECONOMIC COMPETITION IN
2 EXISTENCE BETWEEN THE CHRONICLE AND THE EXAMINER; IS THAT
3 RIGHT?
4 A. THAT'S CORRECT.
5 Q. OKAY. I WANT TO DIRECT YOUR ATTENTION TO SOME STATEMENTS
6 THAT WERE MADE BY THE ANTITRUST DIVISION OF THE UNITED STATES
7 DEPARTMENT OF JUSTICE IN THE AMICUS BRIEF THAT IT FILED IN THE
8 HONOLULU CASE.
9 AND I AM READING FROM PAGE 21. IT SAYS:
10 "FIRST" --
11 A. MAY I HAVE A COPY OF THAT TO LOOK AT AS YOU READ IT?
12 Q. SURE.
13 MAY I APPROACH THE WITNESS, YOUR HONOR?
14 THE COURT: YES.
15 AND I AM GOING TO ASK THE CLERK TO RETRIEVE MY COPY
16 OF THAT WHICH IS IN CHAMBERS.
17 MR. SHULMAN: HERE. MAY WE HAND ONE UP, YOUR HONOR?
18 MR. HALLING: (INDICATING).
19 THE COURT: ALL RIGHT. THAT'S FINE.
20 THANK YOU.
21 THE WITNESS: THANK YOU.
22 BY MR. SHULMAN:
23 Q. FOR CONTEXT, IF YOU WILL GO TO PAGE 20, THAT'S THE SECTION
24 I AM GOING TO BE TAKING -- READING STATEMENTS FROM. IT'S
25 HEADED.
1718
ROSSE - CROSS / SHULMAN
1 "C: THE COURT SHOULD NOT CONCLUDE ON THIS
2 RECORD THAT ECONOMIC COMPETITION BETWEEN THE
3 PARTIES TO THIS JOA CANNOT EXIST."
4 AND THEN IF YOU'VE HAD A CHANCE TO READ THAT
5 PARAGRAPH, I WILL BEGIN AT THE TOP OF THE NEXT PAGE, PAGE 21.
6 A. YES.
7 Q. OKAY. IT SAYS:
8 "FIRST, PRIOR TO TERMINATION OF THE JOA,
9 NEWSPAPERS MAY HAVE AN INCENTIVE TO IMPROVE
10 OPERATIONS AND INCREASE CIRCULATION IN ORDER TO
11 POSITION THEMSELVES BETTER FOR POSSIBLE POST-JOA
12 COMPETITION."
13 DO YOU AGREE OR DISAGREE WITH THAT?
14 A. THERE MAY BE AN INCENTIVE THERE. HOWEVER, THE -- THAT
15 OPERATES BOTH WAYS. THE INCENTIVE WITH RESPECT TO COMPETITION
16 ON CIRCULATION, FOR INSTANCE, GETS FILTERED THROUGH THE JOINT
17 DECISION PROCESS OF THE JOA. AND SO WHILE THEY MAY ARGUE, AS
18 THEY APPARENTLY HAVE IN THE CASE IN SAN FRANCISCO, FOR
19 DIFFERING POSITIONS, ULTIMATELY THEY GET RESOLVED.
20 AS FAR AS THE COMPETITION FOR IMPROVING THE PRODUCT
21 IS CONCERNED, IT'S THERE, BUT, OF COURSE, IT HAS DIMINISHED
22 BECAUSE THEY ONLY GET HALF THE BENEFITS OF ANY IMPROVEMENTS
23 THEY MAKE SINCE THEY SPLIT -- SPLIT ENTIRELY. SO IT'S A --
24 IT'S A -- IT'S A MIXED STATEMENT AS FAR AS INCENTIVES ARE
25 CONCERNED.
1719
ROSSE - CROSS / SHULMAN
1 Q. OKAY. SO DO YOU AGREE OR DISAGREE WITH --
2 A. I DON'T AGREE WITH IT AS IT'S WRITTEN. I THINK THAT I
3 STANDS ON WHAT I SAID AS TO WHAT I DO BELIEVE.
4 Q. THEN IT CONTINUES, QUOTE:
5 "THAT IS, IF COMMERCIAL COMPETITION BETWEEN
6 THE NEWSPAPERS FOLLOWING TERMINATION OF THE JOA
7 WERE POSSIBLE, THEN EDITORIAL RIVALRY BETWEEN
8 THE NEWSPAPERS PRIOR TO TERMINATION MIGHT BE
9 EXPECTED TO AFFECT BOTH CIRCULATION OF AND THE
10 INTEREST OF ADVERTISERS IN VYING SPACE IN THE
11 TWO NEWSPAPERS DIFFERENTIALLY."
12 DO YOU AGREE OR DISAGREE WITH THAT?
13 A. I DON'T AGREE WITH IT BECAUSE I THINK THAT'S WHAT FALLS IN
14 THE CATEGORY OF BEING A VACUOUS HYPOTHESIS. THAT IS, I DON'T
15 THINK COMMERCIAL COMPETITION FOLLOWING TERMINATION OF THE JOA
16 WOULD BE POSSIBLE.
17 Q. SO YOU THINK THAT THE --
18 A. SO THE REST OF THE STATEMENT IS MEANINGLESS.
19 Q. SO YOU THINK THAT THIS STATEMENT BY THE ANTITRUST DIVISION
20 OF THE DEPARTMENT OF JUSTICE IS A VACUOUS HYPOTHESIS THAT IS
21 MEANINGLESS?
22 A. VACUOUS HYPOTHETICAL.
23 Q. THEN IT SAYS, QUOTE:
24 "AND CIRCULATION AND ADVERTISING ATTAINED
25 DURING THE PERIOD OF THE JOA OBVIOUSLY WOULD
1720
ROSSE - CROSS / SHULMAN
1 AFFECT COMPETITION FOLLOWING TERMINATION."
2 DO YOU THINK THIS IS ANOTHER VACUOUS HYPOTHESIS BY
3 THE DEPARTMENT OF JUSTICE?
4 A. SAME RESPONSE.
5 Q. OKAY. NOW, YOU ARE AWARE, ARE YOU NOT, THAT DURING --
6 UP -- IN FACT, UP UNTIL CLOSE TO THE TIME THAT HEARST AGREED TO
7 BUY THE CHRONICLE, HEARST WAS MAKING REPEATED STATEMENTS TO THE
8 CHRONICLE THAT HEARST INTENDED TO STAY IN THIS MARKET AND
9 COMPETE AFTER THE END OF THE JOA?
10 A. I AM FAMILIAR WITH THE RECORD IN THAT REGARD, YES.
11 Q. OKAY. AND IT'S TRUE ALSO, IS IT NOT, THAT YOU ASKED
12 HEARST AT ONE TIME WHAT ITS PLANS WERE FOR AFTER THE COMPLETION
13 OF THE JOA?
14 A. I MAY HAVE BECAUSE I WAS --
15 Q. WELL, REGARDLESS OF THE REASON, YOU DID MAKE THE REQUEST,
16 RIGHT?
17 A. I SAID I MAY HAVE. I DON'T RECALL SPECIFICALLY.
18 Q. AND YOU -- IT'S ALSO TRUE, IS IT NOT, THAT YOU NEVER
19 REALLY GOT AN ANSWER?
20 A. I DON'T RECALL THAT SPECIFICALLY.
21 Q. OKAY. WELL, YOU WERE IN A MEETING, WERE YOU NOT, WITH
22 HEARST OFFICIALS AND OFFICIALS OF THE ANTITRUST DIVISION OF THE
23 DEPARTMENT OF JUSTICE, CORRECT?
24 A. YES, I WAS.
25 Q. AND DURING THAT MEETING THERE WAS DISCUSSION OF HEARST'S
1721
ROSSE - CROSS / SHULMAN
1 STATEMENTS THAT IT INTENDED TO COMPETE AFTER THE END OF THE
2 JOA. DO YOU RECALL THAT?
3 A. YES, I DO REMEMBER SOME DISCUSSION.
4 Q. OKAY. AND YOU ALSO HAVE ASKED A QUESTION OR TWO TO PEOPLE
5 AT HEARST ABOUT HEARST'S PLANS AFTER THE EXPIRATION OF THE JOA,
6 BUT YOU HAVEN'T GOTTEN MUCH IN THE WAY OF ANSWERS; ISN'T THAT
7 TRUE?
8 A. I DON'T REMEMBER SPECIFICALLY.
9 Q. ALL RIGHT.
10 MAY I GIVE THE WITNESS HIS DEPOSITION?
11 THE COURT: YOU MAY.
12 MR. HALLING: WHAT PAGE?
13 MR. SHULMAN: PAGE 78, LINE 15.
14 DO YOU HAVE THAT?
15 MR. HALLING: WHAT PAGE?
16 MR. SHULMAN: IT'S PAGE 78, LINE 15.
17 BY MR. SHULMAN:
18 Q. WERE YOU ASKED THIS --
19 THE WITNESS: EXCUSE ME. WILL YOU WAIT UNTIL I GET
20 THERE?
21 BY MR. SHULMAN:
22 Q. SURE. TELL ME WHEN YOU HAVE IT.
23 A. YES, I AM THERE.
24 Q. OKAY. WERE YOU ASKED THIS QUESTION AND DID YOU GIVE THIS
25 ANSWER?
1722
ROSSE - CROSS / SHULMAN
1 "Q. HAVE YOU EVER TALKED OUTSIDE OF THE
2 MEETING WITH THE JUSTICE DEPARTMENT -- HAVE YOU
3 EVER TALKED TO ANYBODY AT HEARST ABOUT ITS PLANS
4 AFTER THE EXPIRATION OF THE JOA, ASSUMING THEY
5 DON'T BUY THE CHRONICLE?
6 "A. I HAVE ASKED A QUESTION OR TWO BUT I
7 HAVEN'T GOTTEN MUCH IN THE WAY OF ANSWERS."
8 WERE YOU ASKED THAT QUESTION AND DID YOU GIVE THAT
9 ANSWER?
10 A. I DON'T REMEMBER THAT SPECIFICALLY, BUT IT'S A MATTER OF
11 RECORD HERE SO I MUST HAVE BEEN.
12 Q. OKAY. AND IS THAT TRUE?
13 A. TO THE BEST OF MY RECOLLECTION, YES.
14 Q. OKAY. NOW, IN THE -- I WANT TO GO BACK AND ASK YOU ABOUT
15 SOME MORE OF THESE STATEMENTS IN THE --
16 A. I WENT ON, OBVIOUSLY, TO SAY SOME OTHER THINGS AT THAT
17 POINT.
18 Q. RIGHT. OKAY.
19 WOULD YOU TURN YOUR ATTENTION BACK TO THE BRIEF OF
20 THE -- THE AMICUS BRIEF OF THE JUSTICE DEPARTMENT? I THINK YOU
21 HAVE THAT, PAGE 21.
22 A. CORRECT.
23 Q. IN THE -- YOU WILL NOTE, I THINK, AFTER THE SENTENCE I
24 JUST READ TO YOU, THE NEXT SENTENCE READS, QUOTE:
25 "IN THIS CASE, FOR EXAMPLE, THE 1993
1723
ROSSE - CROSS / SHULMAN
1 AGREEMENT PLAINLY CONTEMPLATED THAT THE STAR
2 BULLETIN MIGHT IN FACT PUBLISH AFTER
3 TERMINATION."
4 YOU ARE AWARE, ARE YOU NOT, THAT IN THIS CASE THE
5 JOA AGREEMENT BETWEEN HEARST AND THE CHRONICLE PLAINLY
6 CONTEMPLATES THAT BOTH WILL PUBLISH AFTER TERMINATION?
7 A. I AM AWARE OF WHAT THE LANGUAGE IS AND THAT'S NOW HOW I
8 WOULD INTERPRET IT.
9 Q. OKAY. WOULD YOU TURN TO THE NEXT PAGE, PLEASE, PAGE 22?
10 THE FIRST FULL PARAGRAPH SAYS, QUOTE:
11 "SECOND, PARTICIPANTS IN A JOA CAN AND DO
12 RENEGOTIATE THEIR AGREEMENTS."
13 WOULD YOU AGREE WITH THAT?
14 A. YES.
15 Q. THEN IT SAYS, QUOTE:
16 "BECAUSE THE RELATIVE STRENGTH OF EACH
17 NEWSPAPER CAN AFFECT ITS BARGAINING LEVERAGE IN
18 SUCH A RENEGOTIATION, JOA PARTICIPANTS OFTEN
19 RETAIN AT LEAST SOME INCENTIVE TO MAXIMIZE THEIR
20 RELATIVE CONTRIBUTIONS TO THE PROFITABILITY OF
21 THE COMBINED VENTURE, AS WELL AS THEIR
22 CREDIBILITY TO MAKE CREDIBLE" -- "AS WELL AS
23 THEIR ABILITY TO MAKE CREDIBLE THREATS TO GO IT
24 ALONE."
25 DO YOU AGREE WITH THAT?
1724
ROSSE - CROSS / SHULMAN
1 A. EXCUSE ME.
2 I GUESS -- I DON'T AGREE WITH IT AS IT'S WRITTEN. I
3 GUESS THERE IS SOME MINOR INCENTIVE IN THAT REGARD.
4 Q. OKAY. THEN IT SAYS, QUOTE:
5 "THUS, THE RIVALRY OF PARTIES UNDER A JOA
6 COULD UNDER AT LEAST SOME CIRCUMSTANCES PROPERLY
7 BE REGARDED AS COMPETITION WITHIN THE MEANING OF
8 THE ANTITRUST LAWS."
9 DO YOU AGREE OR DISAGREE WITH THAT STATEMENT BY THE
10 DEPARTMENT OF JUSTICE?
11 A. I AM NOT A LAWYER, AND, THEREFORE, I WOULD REFRAIN FROM
12 MAKING -- OFFERING A LEGAL OPINION. AS A LAY PERSON INTERESTED
13 IN THESE MATTERS AND AS I INTERPRET THE LAW, I WOULD NOT AGREE
14 WITH THAT STATEMENT.
15 Q. IS THAT ANOTHER VACUOUS HYPOTHESIS IN YOUR VIEW?
16 A. NO. I SIMPLY DON'T THINK THAT THAT'S WHAT THE ANTITRUST
17 LAWS CONTEMPLATE.
18 Q. SO YOU DISAGREE WITH THAT STATEMENT?
19 A. AS A LAY PERSON, THAT'S CORRECT.
20 Q. OKAY.
21 A. AS A NON-LAWYER.
22 THE COURT: IS IT THAT THE ANTITRUST LAWS DON'T
23 CONTEMPLATE THIS OR IS IT YOUR OPINION THAT IN FACT THERE IS
24 NOT ECONOMIC RIVALRY BETWEEN PARTICIPANTS IN A JOINT OPERATING
25 AGREEMENT?
1725
ROSSE - CROSS / SHULMAN
1 THE WITNESS: YOUR HONOR, THERE IS -- ANY TIME THERE
2 ARE TWO PARTIES JOINED IN A JOINT VENTURE, WHICH IS WHAT THIS
3 IS ALL ABOUT, THAT HAVE NOT NECESSARILY COINCIDENT INTERESTS,
4 THERE WILL BE A CERTAIN AMOUNT OF RIVALRY, AND THAT'S A NATURAL
5 PART OF THE WAY BUSINESS IS DONE.
6 THE COURT: I SAID "ECONOMIC RIVALRY." DOES THAT
7 MAKE A DIFFERENCE IN YOUR ANSWER?
8 THE WITNESS: THERE IS NO ECONOMIC RIVALRY. THE
9 JUSTICE DEPARTMENT IN THIS CASE WAS TRYING TO READ ECONOMIC
10 RIVALRY INTO -- RIVALRY INTO DECISION MAKING THAT I AM NOT SURE
11 IS JUSTIFIED. AND THEY WERE TRYING TO GENERATE A FORM OF
12 ECONOMIC COMPETITION WHICH, EVEN IF IT EXISTED, I AM NOT SURE
13 FALLS WITHIN THE PURVIEW OF THE ANTITRUST LAWS.
14 AGAIN, THAT IS NOT A LEGAL OPINION, SIMPLY MY VIEW
15 OF WHAT THE ANTITRUST LAWS ARE ABOUT.
16 THE COURT: SORRY FOR THE INTERRUPTION.
17 MR. SHULMAN: THAT'S FINE.
18 BY MR. SHULMAN:
19 Q. I THINK YOU ALSO TESTIFIED IN YOUR DIRECT EXAMINATION THAT
20 YOU ARE A PROPONENT OF WHAT YOU TERMED "MONOPOLY" -- OR,
21 ACTUALLY, IT WAS MR. CHAMBERLAIN TERMED "MONOPOLISTIC
22 COMPETITION"; IS THAT RIGHT?
23 A. I AM NOT A PROPONENT OF IT. SIMPLY, THAT'S ONE OF MANY
24 MODELS OF COMPETITION THAT ECONOMISTS USE TO ANALYZE
25 INDUSTRIES, AND IT HAPPENS TO BE THE ONE THAT -- THAT'S
1726
ROSSE - CROSS / SHULMAN
1 APPROPRIATE FOR ANALYZING COMMUNICATION INDUSTRIES. AND SO, AS
2 I BECAME MORE AND MORE INTERESTED IN COMMUNICATION INDUSTRIES,
3 I FOUND MYSELF SPENDING MORE AND MORE TIME WITH CHAMBERLAINIAN
4 THEORY.
5 Q. OKAY. AND SO THAT YOU BELIEVE THAT MONOPOLISTIC
6 COMPETITION IS THE APPROPRIATE MODEL TO APPLY, FOR EXAMPLE, TO
7 THE NEWSPAPER BUSINESS?
8 A. I DO.
9 Q. OKAY. AND YOU MENTIONED THAT ONE OF YOUR ARTICLES WAS
10 ABOUT A CONTROVERSY, AN ACADEMIC CONTROVERSY, OF CHAMBERLAIN
11 VERSUS AN ENGLISH ECONOMIST JOAN ROBINSON, WHO MAINTAINED THAT
12 THIS KIND OF INDUSTRIAL STRUCTURE, I.E. MONOPOLISTIC
13 COMPETITION, CREATED MONOPOLY RENTS. DO YOU RECALL THAT?
14 A. THAT'S CORRECT.
15 Q. MONOPOLY RENTS ARE ESSENTIALLY THE SAME AS MONOPOLY
16 PROFITS?
17 A. IN LAY LANGUAGE, CORRECT.
18 Q. OKAY. AND ARE YOU AWARE THAT IN THE -- IN THE CLASSIC
19 MODEL OF ECONOMIC COMPETITION THAT WHERE THERE IS COMPETITION,
20 PRICES TEND TO APPROACH MARGINAL COSTS?
21 A. YES, I AM.
22 Q. OKAY. AND ARE YOU AWARE THAT THE SUPREME COURT -- THE
23 UNITED STATES SUPREME COURT HAS TALKED ABOUT THE ABILITY -- AND
24 THIS IS IN THE INDIANA FEDERATION OF DENTISTS CASE -- HAS
25 TALKED ABOUT THE ABILITY OF THE MARKET TO ENHANCE SOCIAL
1727
ROSSE - CROSS / SHULMAN
1 WELFARE BY ENSURING THE DIVISION OF DESIRED GOODS AND SERVICES
2 TO CONSUMERS AT A PRICE APPROXIMATING THE MARGINAL COSTS OF
3 PROVIDING THEM?
4 MR. CONNELL: OBJECTION. NOT A LAWYER, PROBABLY
5 NEVER HEARD OF THE CASE.
6 THE COURT: CALLS FOR CONCLUSION. OBJECTION
7 SUSTAINED.
8 STATE THE GROUND OF YOUR OBJECTION. I DON'T FAVOR
9 SPEAKING OBJECTIONS, BUT IT DOES HELP TO HAVE A GROUND OF
10 OBJECTION STATED, MR. CONNELL.
11 MR. CONNELL: YOUR HONOR, I APOLOGIZE. I TAKE YOUR
12 POINT AND I DO APOLOGIZE. EXCITED UTTERANCE.
13 THE COURT: EXCITED UTTERANCE, WAS IT?
14 MR. CONNELL: YES.
15 MR. ALIOTO: ANCIENT DOCUMENT.
16 (LAUGHTER)
17 BY MR. SHULMAN:
18 Q. NOW, THE -- YOU -- ONE OF THE -- ONE OF THE EXERCISES THAT
19 YOU PERFORMED WAS TO LOOK AT THE NEWSPAPER AGENCY IN THE
20 ABSENCE OF PUBLISHING THE EXAMINER, IN OTHER WORDS, JUST
21 PUBLISHING ONE NEWSPAPER, CORRECT?
22 A. THAT'S CORRECT. THAT'S WHAT THE INCREMENTAL STUDY WAS
23 ABOUT, YES.
24 Q. OKAY. AND THAT -- WE ALSO TALKED YESTERDAY ABOUT THE
25 EXERCISE THAT HAD BEEN DONE BY THE AGENCY, MR. FALK LOOKING AT
1728
ROSSE - CROSS / SHULMAN
1 THE A.M. ONLY PRO FORMA, RIGHT?
2 A. YES.
3 Q. OKAY. NOW, IN THAT SCENARIO THERE IS AN INCREASE OF
4 PROFITS, IS THERE NOT?
5 A. IN WHICH SCENARIO?
6 Q. BOTH OF THEM, THE ONE YOU MODELED AND THE ONE THAT
7 MR. FALK MODELED.
8 A. CORRECT.
9 Q. AND THERE -- IN THE ONE THAT MR. FALK MODELED THERE IS
10 ALSO AN INCREASE IN PRICES.
11 A. THERE IS AN INCREASE IN COSTS PER THOUSAND PRICING, NOT IN
12 SPACE PRICING.
13 Q. BUT THERE IS THAT INCREASE IN PRICING THAT WE TALKED ABOUT
14 YESTERDAY.
15 A. I JUST -- I JUST STATED --
16 Q. OKAY.
17 A. -- WHAT THE TRUTH WAS.
18 Q. AND THAT IS THE OPPOSITE OF A SITUATION WHERE PRICES
19 APPROACH MARGINAL COSTS, IS IT NOT?
20 A. OPPOSITE? I DON'T KNOW WHAT YOU MEAN BY "OPPOSITE."
21 Q. THEY ARE GOING THE OTHER WAY.
22 A. NOT NECESSARILY. THAT'S NOT AN ANSWER -- NOT A QUESTION
23 THAT CAN BE ANSWERED TO SIMPLISTICALLY.
24 Q. YOU -- I THINK YOU SAID ONE OF THE ARTICLES THAT YOU WERE
25 ASKED ABOUT IS YOUR -- YOUR ARTICLE ABOUT ECONOMIC -- THE
1729
ROSSE - CROSS / SHULMAN
1 ECONOMIC LIMITS OF PRESS RESPONSIBILITY.
2 DO YOU REMEMBER THAT?
3 A. YES.
4 Q. AND I THINK THE ESSENCE OF THE -- OR THE THESIS OF THE
5 ARTICLE, AS I UNDERSTOOD YOUR TESTIMONY -- AND LET ME SEE IF I
6 HAVE GOT IT RIGHT. BECAUSE A NEWSPAPER HAS TO SURVIVE
7 ECONOMICALLY, THERE ARE ECONOMIC LIMITS ON HOW FAR A NEWSPAPER
8 CAN EXERCISE ITS FUNCTION AS A FOURTH ARM OF GOVERNMENT TO
9 PROVIDE THE INFORMATION THAT MAKES AN ECONOMY IN A SOCIETY WORK
10 WELL. THERE ARE ECONOMIC LIMITS ON THE EXTENT TO WHICH A
11 NEWSPAPER CAN BE COUNTED ON TO SPEAK FREELY.
12 HAVE I GOT IT RIGHT?
13 A. I AM NOT SURE I ADDED THE WORD "SPEAK FREELY," BUT THE
14 REST OF IT, I THINK THAT'S CORRECT.
15 Q. OKAY. LET ME ASK YOU THIS: IN YOUR VIEW, IN YOUR
16 OPINION, CAN ECONOMIC CIRCUMSTANCES EVER JUSTIFY AN OFFER BY A
17 NEWSPAPER TO A PUBLIC OFFICIAL TO PROVIDE FAVORABLE EDITORIAL
18 TREATMENT IN RETURN FOR THAT PUBLIC OFFICIAL'S SUPPORT OF THAT
19 NEWSPAPER'S ACQUISITION OF ANOTHER PAPER?
20 MR. CONNELL: OBJECTION.
21 THE COURT: OVERRULED.
22 THE WITNESS: NO.
23 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
24 QUESTIONS.
25 THE COURT: REDIRECT?
1730
ROSSE - REDIRECT / CONNELL
1 MR. CONNELL: IF YOU PLEASE, YOUR HONOR.
2 REDIRECT EXAMINATION
3 BY MR. CONNELL:
4 Q. DR. ROSSE, GOOD MORNING.
5 A. GOOD MORNING.
6 Q. DR. ROSSE, IN YOUR TESTIMONY YESTERDAY DURING EXAMINATION
7 BY MR. SHULMAN -- AND I AM READING FROM PAGE -- WELL, I AM
8 READING, YOUR HONOR, FROM, I GUESS, THE ROUGH -- THE ROUGH
9 DRAFT BECAUSE I DIDN'T HAVE THE FINAL. BUT IT'S PAGE 158. AND
10 YOU WERE ASKED BY MR. SHULMAN A SERIES OF QUESTIONS ABOUT
11 WHETHER IT IS BETTER FOR SAN FRANCISCO TO HAVE ONE NEWSPAPER
12 VOICE OR TWO NEWSPAPER VOICES, AND YOU SAID -- HE ASKED YOU:
13 "Q. THEY WOULD BE BETTER OFF WITH ONE VOICE
14 AND NOT TWO, RIGHT?
15 "A. THAT'S RIGHT.
16 "Q. OKAY. NOW YOU KNOW, DO YOU NOT, THAT
17 IT'S -- THAT THAT WAS EXACTLY CONTRARY TO THE
18 POLICY THAT HAS BEEN ENACTED INTO LAW BY THE
19 CONGRESS OF THE UNITED STATES IN THE NEWSPAPER
20 PRESERVATION ACT"?
21 I MADE AN OBJECTION WHICH THE COURT OVERRULED. AND
22 YOU SAID:
23 "IT APPEARS TO BE IN CONFLICT WITH THAT --
24 WITH THAT POLICY. IT WOULD NOT BE THE FIRST
25 TIME I EVER DISAGREED WITH AN ACT OF CONGRESS,
1731
ROSSE - REDIRECT / CONNELL
1 HOWEVER. DR. ROSSE" --
2 THE COURT: WHAT PAGE WAS THAT?
3 MR. CONNELL: PAGE 158 OF THE ROUGH. AND I AM NOT
4 SURE THAT IS GOING TO TRACK WITH THE --
5 MR. SHULMAN: WE HAVE THE . . .
6 MR. CONNELL: I COULDN'T -- I DIDN'T HAVE TIME TO
7 FIND IT IN THE FINAL. MAYBE SOMEBODY ELSE DID.
8 MR. SHULMAN: I DID, YOUR HONOR.
9 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1732
ROSSE - REDIRECT / CONNELL
1 (PAUSE IN PROCEEDINGS.)
2 MR. SHULMAN: OH, I HAVE IT. OKAY. THAT'S AT PAGE
3 16 -- I'M SORRY, PAGE 1664.
4 MR. CONNELL: 1664.
5 THE COURT: THANK YOU.
6 MR. SHULMAN: BEGINNING -- IT ACTUALLY STARTS ON
7 1663, LINE 18.
8 THE COURT: THANK YOU.
9 MR. CONNELL: ALL RIGHT. AND LET ME SEE IF I READ
10 IT -- WHY DON'T I READ IT FROM THIS RECORD, YOUR HONOR.
11 "Q. THEY WOULD BE BETTER OFF WITH ONE VOICE
12 AND NOT TWO, RIGHT?
13 "A. THAT'S RIGHT.
14 "Q. OKAY. NOW, YOU KNOW, DO YOU NOT, THAT
15 THAT IS EXACTLY CONTRARY TO THE POLICY THAT HAS
16 BEEN ENACTED INTO LAW BY THE CONGRESS OF THE
17 UNITED STATES AND THE NEWSPAPER PRESERVATION
18 ACT?"
19 CONNELL'S OBJECTION IS OVERRULED.
20 "THE WITNESS: IT APPEARS TO BE IN CONFLICT
21 WITH THAT -- WITH THAT POLICY. IT WOULD NOT BE
22 THE FIRST TIME I EVER DISAGREED WITH AN ACT OF
23 CONGRESS, HOWEVER."
24 Q. DO YOU REMEMBER THAT STATEMENT?
25 A. I DO.
1733
ROSSE - REDIRECT / CONNELL
1 Q. WHAT DID YOU HAVE IN MIND WITH RESPECT TO THE POLICY IN
2 THE NEWSPAPER PRESERVATION ACT THAT CAUSED YOU TO SAY THAT YOUR
3 VIEW THAT THE EXAMINER OUGHT TO BE CLOSED WAS IN CONFLICT WITH
4 IT?
5 A. WELL, IT WAS -- THAT REALLY IS A LEGAL ISSUE RATHER THAN
6 AN ECONOMIC ISSUE, AND I THINK MY POINT WAS -- I WAS ACCEPTING
7 MR. SHULMAN'S WORD ON THAT WHEN I SHOULDN'T HAVE BEEN.
8 THE TRUTH OF THE MATTER IS, I DON'T FIND MYSELF IN
9 OPPOSITION TO THE ACT AS IT WAS WRITTEN AND AS IT'S APPLIED IN
10 THE FORMATION OF JOA'S. I DO FIND MYSELF IN OPPOSITION TO THE
11 INTERPRETATION THAT SOMEONE PUT ON IT THAT THAT FOREVER LOCKS
12 THOSE NEWSPAPERS INTO AN ARRANGEMENT THAT, AS CIRCUMSTANCES
13 CHANGE, BECOMES UNECONOMIC AND CERTAINLY NOT IN THE BEST
14 INTERESTS OF EITHER THE PARTIES OR THE COMMUNITY INVOLVED. AND
15 THAT WAS THE PART THAT I WAS EXPRESSING MY DISAGREEMENT WITH.
16 Q. AND, DR. ROSSE, IN THE COURSE OF YOUR DIRECT TESTIMONY YOU
17 REVIEWED THE LIST OF JOINT OPERATING AGREEMENT CITIES AND THE
18 INSTANCES WHERE THOSE JOA'S HAVE BEEN TERMINATED, SOME OF THEM
19 TERMINATED IN ADVANCE OF THE DATE ORIGINALLY SET OUT IN THE JOA
20 ITSELF. YOU REMEMBER THAT?
21 A. YES, I DO.
22 Q. ARE YOU AWARE OF ANY INSTANCES IN WHICH THE JUSTICE
23 DEPARTMENT HAS FILED A CASE TO STOP THOSE TERMINATIONS FROM
24 TAKING PLACE?
25 A. NO, I'M NOT.
1734
ROSSE - REDIRECT / CONNELL
1 Q. DR. ROSSE, IF YOU WOULD LOOK TO YOUR LEFT. TO THE EASEL,
2 I'M SORRY.
3 A. THE EASEL, OKAY.
4 Q. THAT REPRESENTS A PART OF THE CROSS-EXAMINATION DONE BY
5 MR. SHULMAN; DOES IT NOT?
6 A. THAT'S CORRECT.
7 Q. AND THAT CROSS-EXAMINATION --
8 MR. CONNELL: EXCUSE ME FOR A MOMENT, YOUR HONOR.
9 I'VE GOT TO FIND AN EXHIBIT.
10 (PAUSE IN PROCEEDINGS.)
11 MR. CONNELL: PERHAPS THE -- WHAT I HAVE IN MIND, IF
12 SOMEONE OVER THERE COULD ASSIST ME, IS -- AH -- IS EXHIBIT
13 0983.
14 Q. DO YOU STILL HAVE THAT UP THERE, H-0983? THAT'S A PRO
15 FORMA, JUST TO ASSIST YOU IN LOCATING IT.
16 A. (WITNESS EXAMINES DOCUMENT.)
17 Q. HAVE YOU FOUND IT?
18 A. YES, I DO HAVE IT IN FRONT OF ME.
19 Q. DR. ROSSE, WHAT IS A PRO FORMA?
20 A. PRO FORMA, IT'S A PHRASE USED BY BUSINESS PEOPLE TO
21 DESCRIBE A HYPOTHETICAL OR A "WHAT IF" CALCULATION TO
22 ILLUSTRATE OR TO MAKE A POINT OR TO HELP THEM ANALYZE A
23 PARTICULAR PROBLEM.
24 Q. DO YOU UNDERSTAND THAT THIS DOCUMENT THAT WE'RE LOOKING AT
25 REPRESENTS OR CONSTITUTES A DECISION BY HEARST AS TO WHAT IT
1735
ROSSE - REDIRECT / CONNELL
1 WILL DO IF IT ACQUIRES THE CHRONICLE?
2 A. NO, I DO NOT. IT'S A PRO FORMA THAT WAS PRODUCED, AS I
3 UNDERSTAND IT, BY MR. FALK NOT BY HEARST, AND IT WAS ALSO
4 PRODUCED INDEPENDENTLY AND EARLIER THAN ANY OF ANY TRANSACTION,
5 I BELIEVE. YES. IN ANY EVENT, I DO NOT VIEW THIS AS A
6 POSITION OF HEARST.
7 Q. NOW, DR. ROSSE, IF YOU COULD LOOK AT THE EASEL THERE, AND
8 MR. SHULMAN DID SOME CALCULATIONS BASED UPON THE DATA CONTAINED
9 IN THIS EXHIBIT AND THE RESULTS OF THOSE CALCULATIONS ARE ON
10 THAT BOARD.
11 THERE'S A 14 PERCENT WITH AN ARROW GOING UP LINE.
12 DO YOU SEE IT?
13 A. YES.
14 Q. DO YOU UNDERSTAND THAT THIS EXHIBIT SHOWS THAT IF THE
15 HEARST BUYS THE CHRONICLE, THERE'S GOING TO BE A 14 PERCENT
16 INCREASE IN ADVERTISING RATES?
17 A. NO.
18 Q. WHAT DO YOU UNDERSTAND THAT THIS EXHIBIT SHOWS?
19 A. THIS EXHIBIT SHOWS THE THOUGHT EXERCISE THAT MR. FALK WAS
20 GOING THROUGH AS HE CARRIED OUT THIS PRO FORMA.
21 Q. AND AS A PERSON WHO ONCE WAS THE CHIEF EXECUTIVE OFFICER
22 OF A CHAIN OF NEWSPAPERS, WHAT WOULD YOU EXPECT HEARST WOULD DO
23 IF IT TRANSFERRED THE EXAMINER TO MR. FANG AND ACQUIRED THE
24 CHRONICLE RELATIVE TO ITS ADVERTISING RATES?
25 A. IT WOULD LOOK VERY CLOSELY AT THOSE ADVERTISING RATES AND
1736
ROSSE - REDIRECT / CONNELL
1 AT THE COMPETITION. IT'S CONSTRAINED, OF COURSE, IN WHAT IT
2 CAN CHARGE BY WHAT THE MARKET WILL ACCEPT. IF THE MARKET IS
3 PREPARED TO ACCEPT A CONTINUATION OF THE SAME TERMS, SAME
4 ADVERTISING PRICES, IT WILL PROBABLY KEEP THEM.
5 THERE ARE REASONS TO BELIEVE THAT MIGHT BE THE CASE.
6 ONE OF THEM IS THAT I UNDERSTAND IT'S BEEN SEVERAL YEARS
7 SINCE -- SOME TIME SINCE THE LAST GENERAL ADVERTISING PRICE
8 INCREASE TOOK PLACE WITH THE CHRONICLE AND EXAMINER, AND THAT
9 WAS SOMETHING MR. FALK TOLD ME WHEN WE WERE CONSTRUCTING THE
10 ORIGINAL -- THE INCREMENTAL STUDY, AT WHICH TIME HE ARGUED THAT
11 WE SHOULD USE HIS PRICING ASSUMPTIONS; AND WE SAID, "NO. WE'D
12 RATHER BE MORE CONSERVATIVE."
13 BUT, IN ANY EVENT, THE ARGUMENT WAS MADE THAT IT HAD
14 BEEN SOME TIME AND THEY WERE DUE FOR A PRICE INCREASE BECAUSE A
15 FAIR AMOUNT OF INFLATION HAD TAKEN PLACE AND THEY NEEDED TO
16 CATCH UP. AND HE ARGUED AT THAT TIME, AND I THINK WITH SOME
17 JUSTICE, THAT THEY WOULD SIMPLY DELAY AN INCREASE THAT WOULD
18 OTHERWISE TAKE PLACE BECAUSE OF INFLATION IN ORDER TO MAINTAIN
19 THE EXISTING PRICE STRUCTURE.
20 ALSO IN MAKING THAT DECISION I WOULD LOOK AT THE
21 CHANGE IN READERSHIP. DUE TO THE LOSS OF DUPLICATION, THERE
22 WOULD BE A RELATIVELY SMALL CHANGE IN READERSHIP AND I WOULD
23 THINK ABOUT THE CASE THAT I COULD MAKE TO MY ADVERTISERS. AND
24 IF I THOUGHT I COULD MAKE A CASE BOTH ON GROUNDS OF IT'S BEEN A
25 WHILE SINCE WE HAD OUR LAST PRICE INCREASE, I'LL PASS THAT
1737
ROSSE - REDIRECT / CONNELL
1 ON -- I'LL DELAY ANY PRICE INCREASE ON INFLATION GROUNDS BUT IN
2 THE MEANTIME WE'RE GIVING YOU VERY MUCH, ALMOST AS MUCH
3 READERSHIP AS YOU HAD BEFORE AND, THEREFORE, I WILL LEAVE THE
4 PRICES, I WOULD BE INCLINED I COULD LEAVE THE PRICES THE SAME.
5 BUT, AGAIN, I WANT TO EMPHASIZE IT REALLY IS NOT
6 SOMETHING THAT YOU CAN DECIDE TO DO ABSENT THE CONTEXT OF THE
7 MARKET BECAUSE THE MARKET WILL LIMIT WHATEVER IT IS YOU'RE ABLE
8 TO DO, AND YOU NEED TO SIMPLY ASK YOURSELF WHETHER YOU CAN MAKE
9 A CASE FOR DOING IT. IF YOU CAN'T MAKE THE CASE TO YOUR
10 ADVERTISERS IN VIEW OF THEIR COMPETITIVE CHOICES, THEN YOU'RE
11 GOING TO REDUCE THOSE PRICES. AND SO THAT'S HOW I WOULD TREAT
12 IT WERE I IN THIS DECISION POSITION.
13 Q. ALL RIGHT, SIR.
14 DR. ROSSE, MR. SHULMAN QUESTIONED YOU ABOUT AN
15 EXHIBIT WHERE YOU HAD CALCULATED SOME DAILY CPM
16 COST-PER-THOUSAND ANALYSIS. DO YOU HAVE THAT IN FRONT OF YOU?
17 AND IF YOU DO, COULD YOU TELL ME WHAT NUMBER IT IS?
18 A. WHY DON'T YOU TELL ME WHAT NUMBER IT IS?
19 Q. WELL, I....
20 (PAUSE IN PROCEEDINGS.)
21 THE WITNESS: I'LL SEE IF I CAN FIND IT.
22 BY MR. CONNELL:
23 Q. 1197.
24 A. (WITNESS EXAMINES DOCUMENT.)
25 MR. CONNELL: I'M GOING TO APPROACH THE WITNESS, IF
1738
ROSSE - REDIRECT / CONNELL
1 YOUR HONOR PLEASE, AND HAND HIM A COPY.
2 THE COURT: THAT WILL BE FINE.
3 THE WITNESS: THANK YOU.
4 BY MR. CONNELL:
5 Q. YOU RECOGNIZE THAT AS SOMETHING YOU WERE ASKED ABOUT BY
6 MR. SHULMAN?
7 A. YES, I DO.
8 Q. AND YOU HAD THAT PREPARED BECAUSE OF CERTAIN EXHIBITS THAT
9 DR. COMANOR PREPARED; IS THAT RIGHT?
10 A. THAT'S CORRECT.
11 Q. AND DO YOU HAVE IN FRONT OF YOU THE DR. COMANOR EXHIBITS
12 THAT ARE CONCERNED HERE? AND I'M GOING TO SUGGEST NUMBERS 143,
13 144, IN THAT RANGE, 145.
14 A. I DON'T HAVE THOSE HERE.
15 Q. YOU DON'T HAVE THEM?
16 A. NO.
17 Q. OKAY. NOW YOU DO.
18 MR. CONNELL: I'M SORRY, YOUR HONOR.
19 Q. COULD YOU PICK OUT OF THAT SMALL PILE OF EXHIBITS,
20 STARTING AT 143, THAT WOULD BE PLAINTIFF'S 143, WHICH ONES YOU
21 HAD -- YOU WERE USING WHEN YOU PREPARED YOUR OWN EXHIBIT?
22 A. WELL, 144, WHICH IS TITLED "NATIONAL AND LOCAL ADVERTISING
23 RATES BY COUNTY," 145, WHICH IS TITLED "CLASSIFIED SECTION
24 ADVERTISING RATES BY TARGET COUNTY," AND THEN A THIRD ONE,
25 1101, "NATIONAL AND LOCAL ADVERTISING RATES BY COUNTY."
1739
ROSSE - REDIRECT / CONNELL
1 Q. ALL RIGHT. AND IN THOSE EXHIBITS, JUST BRIEFLY SUMMARIZE,
2 WHAT IS IT THAT DR. COMANOR DID.
3 A. WHAT DR. COMANOR DID WAS TO LOOK AT THE CIRCULATION OF
4 EACH OF FOUR DAILY NEWSPAPERS IN EACH OF FOUR COUNTIES, AND
5 THEN THE FOUR NEWSPAPERS WERE THE CHRONICLE/EXAMINER
6 COMBINATION, THE OAKLAND TRIBUNE, THE SAN JOSE MERCURY AND THE
7 CONTRA COSTA TIMES. THE COUNTIES WERE SAN FRANCISCO COUNTY,
8 ALAMEDA COUNTY, SANTA CLARA COUNTY AND CONTRA COSTA COUNTY.
9 AND WHAT HE DID THEN WAS TO TAKE WHAT HE THOUGHT
10 WERE RELEVANT ADVERTISING PRICES FOR REACHING THE READERS IN
11 EACH OF THOSE COUNTIES USING THE MEDIUM IN QUESTION AND
12 CALCULATED A COST PER THOUSAND FOR REACHING THE READERS OF THAT
13 COUNTY.
14 SO, FOR INSTANCE, HE SHOWS THAT NATIONAL
15 ADVERTISING -- ADVERTISERS ON AN OPEN-RATE BASIS WOULD PAY
16 $2.71 PER THOUSAND IN ORDER TO REACH SAN FRANCISCO READERS
17 USING THE SAN FRANCISCO CHRONICLE AND EXAMINER; WHEREAS, THEY
18 WOULD PAY $226 PER THOUSAND TO REACH THOSE SAME READERS USING
19 THE OAKLAND TRIBUNE.
20 Q. IS THAT A REASONABLE ANALYSIS?
21 A. NO.
22 Q. WHY NOT?
23 A. WELL, IT BASICALLY PRESUMES A CONCLUSION IN ORDER TO GET
24 THE RESULT; THAT IS, HE HAS DIVIDED THE MARKET INTO FOUR
25 DIFFERENT COUNTIES AND TREATED EACH OF THOSE COUNTIES AS IF
1740
ROSSE - REDIRECT / CONNELL
1 IT'S A SEPARATE MARKET. AND THEN HE'S PRESUMED THAT IF
2 ADVERTISERS WANTED TO REACH ONLY THE READERS IN, FOR INSTANCE,
3 SANTA CLARA COUNTY, THEY WOULD BUY THE SAN FRANCISCO CHRONICLE
4 AND EXAMINER TO REACH THOSE READERS. SO THEY WOULD PAY A VERY
5 HIGH PRICE FOR DOING SO BY COMPARISON WITH WHAT THEY WOULD HAVE
6 PAID HAD THEY USED THE MERCURY NEWS.
7 THAT'S SIMPLY AN UNREALISTIC -- IT'S UNREALISTIC TO
8 START OFF BY DIVIDING THE MARKET -- BY ASSUMING THAT THE MARKET
9 IS DIVIDED INTO COUNTIES AND THEN TRYING TO CONSTRUCT SOME KIND
10 OF A PRICE TEST TO SEE WHETHER OR NOT THOSE ARE -- THAT'S THE
11 RELEVANT MARKET. THAT'S PRESUMING THE RESULT IN ORDER TO GET
12 THE CONCLUSION.
13 Q. AND THEN YOU TOOK SIMILAR DATA AND PREPARED YOUR OWN
14 EXHIBITS; IS THAT RIGHT?
15 A. I ASKED --
16 Q. YOU HAVE IT?
17 A. -- MR. FALK AND HIS ASSISTANTS TO PREPARE THIS USING THE
18 BASIC SAME SOURCE OF DATA, AND THIS EXHIBIT WAS PREPARED BY
19 THEM AT MY REQUEST.
20 THE COURT: THIS IS EXHIBIT NUMBER?
21 BY MR. CONNELL:
22 Q. THE EXHIBIT NUMBER, DOCTOR?
23 A. 1197.
24 Q. 1197, THANK YOU.
25 AND WHAT DOES THIS ANALYSIS SHOW?
1741
ROSSE - REDIRECT / CONNELL
1 A. WELL, WHAT THEY'VE DONE IS TO FIND A -- IS TO CALCULATE
2 GENERAL ADVERTISING -- AND BY "GENERAL" THEY MEAN NATIONAL
3 ADVERTISING -- NATIONAL ADVERTISING CPM'S, RETAIL ADVERTISING
4 CPM'S AND CLASSIFIED ADVERTISING CPM'S FOR EACH OF THE FIVE
5 NEWSPAPERS IN QUESTION AND -- FIVE NEWSPAPER COUNTIES
6 CHRONICLE/EXAMINER SINGLE SALE.
7 THEY SHOWED THE CIRCULATION OF EACH OF THOSE AND
8 THEN SHOW THE OPEN RATE OR THE 5,000-INCH EQUIVALENT RATE IN
9 EACH CASE. THIS IS ALL BASED ON A 31-AND-A-HALF-INCH AD SIZE;
10 IN OTHER WORDS, A QUARTER PAGE AD.
11 AND SO THEY SHOW, FOR INSTANCE, THAT THE SAN
12 FRANCISCO CHRONICLE AND EXAMINER WOULD CHARGE $24.45 PER
13 THOUSAND READERS FOR THE AD OF 31 AND A HALF INCH, THE QUARTER
14 PAGE AD, TO GENERAL ADVERTISERS FOR THEIR ENTIRE CIRCULATION.
15 WHEREAS, THE MARIN INDEPENDENT WITH 40,000 CIRCULATION WOULD
16 CHARGE $33.98 FOR -- COST PER THOUSAND FOR THE SAME TYPE OF AD
17 FOR ALL OF ITS READERS.
18 Q. ALL RIGHT, SIR.
19 A. AND THAT'S CARRIED OUT. I DON'T WANT TO GO THROUGH ALL OF
20 THEM. IT'S AN INTERESTING DOCUMENT. BUT WHAT IT SHOWS IS
21 THAT, GENERALLY SPEAKING, THE REGIONAL PAPERS ARE LOWER COST ON
22 A COST-PER-THOUSAND BASIS IF YOU WANT TO REACH THE LARGER
23 REGION, IN THIS CASE THE CHRONICLE AND EXAMINER OR THE MERCURY
24 NEWS.
25 IT HAS ANOTHER INTERESTING FEATURE THAT IF YOU LOOK
1742
ROSSE - REDIRECT / CONNELL
1 ACROSS TO THE CLASSIFIED CPM'S, YOU'LL SEE THAT THE MERCURY
2 NEWS, ALTHOUGH IT'S QUITE LOW IN ITS NATIONAL AND RETAIL CPM'S
3 AND QUITE HIGH IN ITS CLASSIFIED, AND THAT REFLECTS THE FACT
4 THAT THAT PARTICULAR NEWSPAPER HAS ONE OF THE STRONGEST
5 RECRUITMENT AND EMPLOYMENT ADVERTISING SECTIONS IN THE COUNTRY;
6 AND IN ORDER TO KEEP THEIR PAPER EVEN APPROXIMATELY IN BALANCE,
7 THEY'VE RAISED THE RATES PRETTY HIGH ON THAT KIND OF
8 ADVERTISING AND KEPT IT LOW ON OTHER KINDS OF ADVERTISING.
9 Q. YOU MEAN THEY RAISED THE RATE TO KEEP DOWN THE DEMAND?
10 A. THAT'S CORRECT.
11 MR. CONNELL: THANK YOU, SIR. I HAVE NO FURTHER
12 QUESTIONS.
13 THE WITNESS: THERE'S A SECOND PAGE --
14 BY MR. CONNELL:
15 Q. I'M SORRY. YOU GO AHEAD.
16 A. -- WHICH I ALSO ASKED TO HAVE PREPARED AND THE SECOND PAGE
17 SHOWS THE ACTUAL SPACE COST. THE FIRST ONE -- WHEN NEWSPAPERS
18 SELL SPACE, THEY SELL IT ON A SPACE BASIS. IF YOU CALL UP AN
19 ADVERTISING SALESMAN AT THE CHRONICLE AND ASK THEM ABOUT THE
20 PRICE FOR A CERTAIN AMOUNT OF SPACE, THEY WOULD GIVE YOU THAT
21 SPACE PRICE. THEY'RE NOT GOING TO GIVE YOU A CPM PRICE.
22 SO THIS SECOND PAGE IS THE ONE THEY ACTUALLY QUOTE
23 IN TERMS OF HOW MUCH IT COSTS TO BUY A CERTAIN AMOUNT OF SPACE,
24 AND THESE ARE THE ONES THAT, YOU KNOW, MATCH EXACTLY THE ONES
25 ON THE PREVIOUS PAGE.
1743
ROSSE - REDIRECT / CONNELL
1 THIS IS ALSO QUITE INTERESTING. IT SHOWS YOU HOW
2 THE OPEN RATE FOR GENERAL ADVERTISING IS VERY HIGH IN THE
3 CHRONICLE BECAUSE, OF COURSE, IT HAS THE LARGEST CIRCULATION,
4 574,000 CIRCULATION. IT'S THE LOWEST IN THE MARIN INDEPENDENT
5 BECAUSE IT'S ONLY GOT 40,000 CIRCULATION. THAT'S A FACTOR OF
6 10 DIFFERENCE IN SPACE PRICE, BUT THERE'S A FACTOR MORE THAN 10
7 DIFFERENCE IN CIRCULATION.
8 THE MAIN POINT OF THIS, HOWEVER, IS TO SHOW THAT IF
9 AN ADVERTISER WERE INTERESTED IN BUYING JUST MARIN COUNTY, HE
10 SURELY WOULDN'T BUY THE CHRONICLE TO GET THERE. HE WOULD BUY
11 THE MARIN INDEPENDENT JOURNAL BECAUSE IT'S MUCH CHEAPER TO
12 REACH MARIN COUNTY.
13 ON THE OTHER HAND, IF THE ADVERTISER WERE INTERESTED
14 IN REACHING SEVERAL COUNTIES OR THE WHOLE BAY AREA, CLEARLY THE
15 CHEAPER SOLUTION IS TO BUY THE CHRONICLE/EXAMINER BECAUSE YOU
16 GET THE LOWER COST PER THOUSAND EVEN THOUGH THE OPEN RATE -- I
17 MEAN, THE SPACE COST RATE IS MUCH HIGHER.
18 Q. AND ARE THESE FACTS CONSISTENT WITH THE TESTIMONY YOU'D
19 PREVIOUSLY GIVEN ABOUT WHAT THE COMPETITION IS IN THIS MARKET?
20 A. IT CERTAINLY IS.
21 MR. CONNELL: THANK YOU, SIR. I'VE CONCLUDED.
22 THE COURT: VERY WELL. ANY OTHER REDIRECT?
23 MR. SHULMAN: YOUR HONOR, I WOULD ASK LEAVE FOR A
24 VERY BRIEF RECROSS JUST ON THIS DOCUMENT BECAUSE IT WAS NOT
25 MENTIONED IN HIS ORIGINAL DIRECT EXAMINATION. I ADMIT I KIND
1744
ROSSE - REDIRECT / CONNELL
1 OF OPENED IT UP BECAUSE I WASN'T AWARE OF IT ON CROSS, BUT THIS
2 IS THE FIRST TIME HE'S REALLY TESTIFIED ABOUT IT.
3 THE COURT: ALL RIGHT. GO AHEAD, MR. SHULMAN.
4 MR. SHULMAN: ALL RIGHT.
5 THE COURT: BEFORE YOU --
6 MR. SHULMAN: GO AHEAD.
7 THE COURT: BEFORE YOU DO THAT, HOWEVER, LET ME
8 CLARIFY SOMETHING BECAUSE I MAY HAVE MISHEARD THE WITNESS.
9 DID I UNDERSTAND YOU TO SAY THAT THE RATE ON A
10 COST-PER-THOUSAND BASIS WAS LOWER IN THE OUTLYING NEWSPAPERS
11 THAN IN THE CHRONICLE/EXAMINER?
12 THE WITNESS: NO. NO. COST-PER-THOUSAND BASIS --
13 THE COURT: IS LOWER IN THE CHRONICLE/EXAMINER?
14 THE WITNESS: -- IS LOWER IN THE REGIONAL PAPERS;
15 THAT IS, THE ONES THAT SERVE THE WHOLE REGION.
16 THE COURT: OH, I SEE. ALL RIGHT.
17 THE WITNESS: THAT'S WHAT I MEANT BY THAT.
18 THE COURT: WHICH WOULD BE THE CHRONICLE AND THE
19 EXAMINER --
20 THE WITNESS: AND THE MERCURY NEWS, CORRECT.
21 THE COURT: -- AND THE MERCURY NEWS, ALL RIGHT.
22 I DID MISUNDERSTAND YOU THEN.
23 MR. SHULMAN?
24 MR. SHULMAN: THANK YOU, YOUR HONOR.
25 MAY I HAVE EXHIBIT 3? I NEED ANOTHER ONE FOR THE
1745
ROSSE - RECROSS / SHULMAN
1 WITNESS.
2 (PAUSE IN PROCEEDINGS.)
3 MR. SHULMAN: MAY I APPROACH THE WITNESS, YOUR
4 HONOR?
5 THE COURT: YES, YOU MAY.
6 RECROSS-EXAMINATION
7 BY MR. SHULMAN:
8 Q. I HAVE PUT IN FRONT OF YOU EXHIBIT 3 IN EVIDENCE. I WANT
9 TO DIRECT YOUR ATTENTION TO PAGE 1739, BATES NUMBER 1739, WHICH
10 IS "SHARE OF FIELD 1998 DAILY NEWSPAPER CIRCULATION IN THE SAN
11 FRANCISCO DMA."
12 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
13 Q. THE TOTAL CIRCULATION FIGURES FOR THE VARIOUS NEWSPAPERS
14 APPEAR AT THE BOTTOM. THEY'RE A LITTLE DIFFERENT FROM THE
15 FIGURES THAT ARE IN YOUR EXHIBIT THAT MR. FALK DID FOR YOU, BUT
16 THEY'RE NOT THAT FAR OFF.
17 I WANT TO DIRECT YOUR ATTENTION FIRST TO THE SAN
18 JOSE MERCURY NEWS. THAT SHOWS TOTAL CIRCULATION RIGHT AT THE
19 BOTTOM OF 294,000; RIGHT?
20 A. THAT'S CORRECT.
21 Q. OF THAT CIRCULATION, ROUGHLY 236,000 IS IN SANTA CLARA
22 COUNTY; RIGHT?
23 A. CORRECT.
24 Q. SO THAT IS ABOUT, BY MY MATH, ABOUT 85, 88 PERCENT; RIGHT?
25 A. I'LL ACCEPT YOUR CALCULATION.
1746
ROSSE - RECROSS / SHULMAN
1 Q. AND IF YOU LOOK AT THE CONTRA COSTA TIMES, THAT SHOWS --
2 WELL, ON THIS ONE IT SHOWS -- IT'S CERTAINLY GROWN. THIS ONE
3 SHOWS TOTAL CIRCULATION OF 98,000; RIGHT?
4 A. CORRECT.
5 Q. AND 93,000 -- I'M SORRY, 92,000 OF THAT IS IN CONTRA
6 COSTA; CORRECT?
7 A. THAT'S CORRECT.
8 Q. SO THAT'S ABOUT -- THAT'S 90 SOME PERCENT; CORRECT?
9 A. YES.
10 Q. AND THEN FOR THE OAKLAND TRIBUNE, THE TOTAL CIRCULATION
11 SHOWN IS ABOUT 67,000; RIGHT?
12 A. CORRECT.
13 Q. AND OF THAT, 55,000 IS IN ALAMEDA?
14 A. THAT'S CORRECT.
15 Q. SO THAT'S ABOUT 85 PERCENT.
16 A. THAT'S CORRECT.
17 Q. AND THEN FOR THE MARIN INDEPENDENT JOURNAL, THAT HAS TOTAL
18 CIRCULATION OF ABOUT 41,000; RIGHT?
19 A. THAT'S CORRECT.
20 Q. AND THAT IS ALMOST ALL THAT 40,000 OF THAT IS IN MARIN;
21 CORRECT?
22 A. THAT'S CORRECT.
23 Q. SO FOR ADVERTISERS WANTING TO REACH, FOR EXAMPLE, READERS
24 IN MARIN, THE CHEAPEST BUY FOR THEM PER THOUSAND IS THE MARIN
25 INDEPENDENT; RIGHT?
1747
ROSSE - RECROSS / SHULMAN
1 A. YES, THAT'S CORRECT.
2 Q. AND THAT WOULD BE TRUE, SAY, ADVERTISERS WANTING TO REACH
3 READERS IN OAKLAND, THE CHEAPEST BUY FOR THEM WOULD BE THE
4 OAKLAND TRIBUNE?
5 A. THAT'S EXACTLY WHAT I TESTIFIED JUST A FEW MOMENTS AGO.
6 Q. AND FOR CONTRA COSTA ADVERTISERS, THE CHEAPEST BUY TO
7 REACH CONTRA COSTA READERS IS THE CONTRA COSTA TIMES?
8 A. THAT'S CORRECT. THAT'S WHAT I TESTIFIED JUST A FEW
9 MOMENTS AGO.
10 MR. SHULMAN: ALL RIGHT. THANK YOU.
11 THE COURT: DR. ROSSE, LET ME ASK A FEW QUESTIONS IF
12 I MIGHT PICK UP ON MR. SHULMAN'S LAST LINE OF QUESTIONS.
13 ARE THE MERCURY NEWS AND CONTRA COSTA TIMES SOLD ON
14 A COMBINATION RATE BASIS?
15 THE WITNESS: NO, THEY'RE NOT BECAUSE THEY BOTH
16 PRODUCE ONLY ONE EDITION A DAY.
17 THE COMBINATION RATE BECAUSE THEY'RE JOINTLY OWNED?
18 THE COURT: YES.
19 THE WITNESS: AS FAR AS I KNOW, I DON'T KNOW THE
20 ANSWER TO THAT. I DON'T BELIEVE THEY ARE, BUT I DON'T KNOW.
21 THE COURT: HOW ABOUT THE OAKLAND TRIBUNE AND THE
22 OTHER PROPERTIES OWNED BY THE SAME OWNERSHIP, I BELIEVE THAT'S
23 MEDIA NEWS?
24 THE WITNESS: I DON'T KNOW THE ANSWER TO THAT. IT'S
25 POSSIBLE THAT THEY ARE. I DON'T BELIEVE THEY ARE, BUT I DON'T
1748
ROSSE - RECROSS / SHULMAN
1 KNOW.
2 YOUR HONOR, IT MAKES SENSE FOR THEM TO SELL THAT AS
3 A JOINT BUY WHEN THEY'RE GOING AFTER REGIONAL ADVERTISERS. TO
4 THE EXTENT THOSE ARE SERVING LOCAL MARKETS, IT DOESN'T MAKE
5 MUCH SENSE. SO IN THE CASE OF THE SINGLETON PAPERS, IT WOULD
6 NOT MAKE SENSE TO OFFER A COMBINATION BUY WITH THE OAKLAND
7 PAPERS AND THE SAN MATEO PAPERS BECAUSE EACH OF THEM IS SELLING
8 DIRECTLY INTO LOCAL MARKETS.
9 NOW, IF THEY WANT TO SELL TO NATIONAL ADVERTISERS,
10 THEY MIGHT OFFER A JOINT BUY, BUT I DON'T KNOW WHETHER THEY DO
11 OR NOT.
12 THE COURT: YOU WERE CHIEF EXECUTIVE OFFICER OF THE
13 FREEDOM NEWSPAPERS --
14 THE WITNESS: FREEDOM COMMUNICATION, YOUR HONOR.
15 THE COURT: -- FREEDOM COMMUNICATION, THE MAIN
16 PROPERTY, THE MAIN NEWSPAPER PROPERTY OF WHICH IS THE ORANGE
17 COUNTY REGISTER?
18 THE WITNESS: THAT'S THE LARGEST ONE, YES.
19 THE COURT: IS THAT SITUATION, COMPETITIVE SITUATION
20 THAT THE ORANGE COUNTY REGISTER FACES, ANALOGOUS TO THAT WHICH
21 THE SAN JOSE MERCURY NEWS FACES VIS-A-VIS THE SAN FRANCISCO
22 PAPERS; THAT IS, THE ORANGE COUNTY REGISTER VIS-A-VIS THE LOS
23 ANGELES TIMES WOULD BE ANALOGOUS TO THE COMPETITIVE SITUATION
24 WHICH THE SAN JOSE MERCURY NEWS FACES VIS-A-VIS THE SAN
25 FRANCISCO PAPERS?
1749
ROSSE - RECROSS / SHULMAN
1 THE WITNESS: NO, NOT VERY CLOSE ACTUALLY.
2 THE COURT: WHY NOT?
3 THE WITNESS: BECAUSE THE LOS ANGELES TIMES CLAIMS
4 ALL OF ORANGE COUNTY AS PART OF ITS CITY ZONE. IT REGARDS ITS
5 PRIMARY MARKET AREA, THE AREA THAT IT -- WITH WHICH IT WANTS TO
6 IDENTIFY ITSELF AS INCLUDING ALL OF ORANGE COUNTY. THE
7 CHRONICLE AND EXAMINER CERTAINLY DO NOT INCLUDE SAN JOSE AS
8 PART OF THE AREA THAT THEY WOULD THINK OF AS THEIR HOME BASE,
9 AS THEIR PRIMARY MARKET AREA OF THEIR CITY ZONE.
10 NEWSPAPERS DEFINE SEVERAL DIFFERENT -- DO SEVERAL
11 DIFFERENT DEFINITIONS OF MARKET AREA, AND ONE IS THE CITY ZONE
12 AND THAT'S THE CLOSE-IN MARKET. SO THE CITY ZONE, I DON'T KNOW
13 FOR A FACT WITHOUT LOOKING IT UP, BUT I IMAGINE THE CITY ZONE
14 OF THE CHRONICLE AND THE EXAMINER INCLUDES THE CITY AND COUNTY
15 OF SAN FRANCISCO PLUS CLOSE OUTLYING AREAS LIKE PARTS OF MARIN
16 COUNTY, PERHAPS PARTS OF OAKLAND, PARTS OF SAN MATEO COUNTY,
17 BUT IT CERTAINLY DOES NOT INCLUDE A MUCH LARGER REGION THAN
18 THAT.
19 THEY THEN DEFINE A SECOND CATEGORY CALLED DMA,
20 DESIGNATED MARKET AREA, AND THAT'S -- THAT INCLUDES MANY -- A
21 MUCH LARGER AREA AND AREAS IN WHICH THEY TYPICALLY FACE LOCAL
22 COMPETITION IN WHICH THEY DO NOT HAVE SUCH A HIGH PENETRATION
23 WHICH ARE NOT REALLY A PART OF THEIR CITY ZONE MARKET.
24 SOMETIMES THEY ALSO USE SOMETHING THAT'S CALLED A
25 TRADE ZONE. A TRADE ZONE IS APPROXIMATELY THE SAME AS THE
1750
ROSSE - RECROSS / SHULMAN
1 DESIGNATED MARKET AREA.
2 BUT, IN ANY EVENT, ALL THAT'S A LONG WAY OF SAYING
3 THE LOS ANGELES TIMES REGARDS THE ORANGE COUNTY AREA AS PART OF
4 ITS CITY ZONE, IN OTHER WORDS, OF ITS CLOSE-IN MARKET AREA, AND
5 IT TREATS IT ACCORDINGLY. THAT'S QUITE DIFFERENT FROM THE WAY
6 IN WHICH THE CHRONICLE AND EXAMINER ARE RELATED TO THE SAN JOSE
7 MERCURY.
8 THE COURT: DID YOU NOT TESTIFY THAT AT ONE TIME THE
9 CHRONICLE AND THE EXAMINER REGARDED SAN JOSE AS WITHIN ITS
10 BASIC AREA OF NEWSPAPER COMPETITION?
11 THE WITNESS: YES, I DID. AND THEIR LARGER TRADE
12 ZONE, IF YOU GO BACK A FEW YEARS, CERTAINLY INCLUDED THAT AND
13 MAY STILL INCLUDE IT. BUT THEY NO LONGER CAN LAY CLAIM TO IT
14 IN THE SAME WAY THAT THEY CAN, FOR INSTANCE, AT AREAS OF MARIN
15 COUNTY OR MENDOCINO COUNTY BECAUSE THE MERCURY NEWS HAS
16 EMERGED -- SAN JOSE HAS EMERGED AS A MAJOR URBAN CENTER WITH A
17 MAJOR URBAN NEWSPAPER THAT HAS EMERGED AS ANOTHER REGIONAL
18 POWER, SO TO SPEAK. IT'S IN THE PROCESS OF SO EMERGING. IT
19 JUST HASN'T FULLY COME OUT.
20 IF SAN JOSE WERE LOCATED 20 MILES CLOSER TO SAN
21 FRANCISCO, THEN IT WOULD BE MORE ANALOGOUS TO THE SITUATION
22 WITH ORANGE COUNTY AND LOS ANGELES AND THE ORANGE COUNTY
23 REGISTER.
24 THE COURT: WELL, UNDER THOSE CIRCUMSTANCES, IS IT
25 REALISTIC TO VIEW THE MERCURY NEWS AS PROVIDING REAL
1751
ROSSE - RECROSS / SHULMAN
1 COMPETITION TO THE SAN FRANCISCO-BASED PAPERS?
2 THE WITNESS: YES. IT'S PUSHING COMPETITION,
3 REGIONAL COMPETITION, UP THE PENINSULA. IT'S A -- IT'S
4 PROVIDING -- THERE ARE A LARGE NUMBER OF ADVERTISERS AND
5 READERS FOR WHICH THE MERCURY NEWS IS A REAL CHOICE. I WAS ONE
6 OF THOSE, FOR INSTANCE, FOR MANY YEARS AS I LIVED ON THE FRINGE
7 OF THE SAN FRANCISCO MARKET AND I IN FACT SUBSCRIBED ONLY
8 OCCASIONALLY TO THE SAN FRANCISCO PAPERS AND REGULARLY TO THE
9 SAN JOSE PAPERS SIMPLY BECAUSE THEY DID A BETTER JOB OF
10 COVERING THE NEWS, MY INSTITUTION AT THAT TIME WAS STANFORD,
11 THAN THE SAN FRANCISCO PAPERS DID. BUT IT'S THAT AUDIENCE THAT
12 IS IN CONTENTION RIGHT NOW.
13 THE MERCURY NEWS AS PART OF A GROWING CENTER IN THE
14 BAY AREA IS PUSHING ITS MARKET -- ITS MARGIN FARTHER AND
15 FARTHER IN; AND, YOU KNOW, MY VIEW IS THAT AS SAN JOSE AND
16 SOUTH BAY BECOMES A MORE IMPORTANT PART OF THE BAY AREA, THAT
17 THE CENTER OF GRAVITY IN THE BAY AREA IS GOING TO SHIFT IN THAT
18 DIRECTION AND THE MERCURY NEWS WILL CERTAINLY BENEFIT THEREBY.
19 THE COURT: YOU MENTIONED THAT YOU TESTIFIED IN THE
20 PACIFIC SUN CASE.
21 THE WITNESS: I DID, YOUR HONOR.
22 THE COURT: THAT WAS, I BELIEVE, 1979.
23 THE WITNESS: THAT'S CORRECT.
24 THE COURT: AND WAS THAT A CASE TRIED BY JUDGE
25 RENFREW?
1752
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1 THE WITNESS: NO, IT WAS NOT. JUDGE RENFREW TRIED
2 THE KNUDSEN/DAILY REVIEW CASE.
3 THE COURT: EXCLUSIVE DAILY REVIEW CASE?
4 THE WITNESS: KNUDSEN/DAILY REVIEW CASE.
5 THE COURT: KNUDSEN?
6 THE WITNESS: KNUDSEN/DAILY REVIEW CASE WHICH WAS A
7 VERTICAL PRICE FIXING CASE THAT FELL UNDER THE ALBRIGHT
8 DECISION OF THE SUPREME COURT.
9 THE COURT: AND IT IS IN THAT CASE THAT HE GAVE RISE
10 TO THE "DOWNWARD SPIRAL" PHRASE?
11 THE WITNESS: THAT WAS THE PHRASE -- FIRST TIME I
12 HAD HEARD IT. AS I WAS SITTING ON THE WITNESS STAND, YOUR
13 HONOR, BUSILY EXPLAINING HOW ADVERTISING AND READER DEMANDS
14 INTERACT IN THE CASE OF A NEWSPAPER AND WITH WHAT CONSEQUENCE,
15 AND HE INTERRUPTED AND SAID, "SO THAT'S WHAT THEY MEANT BY THE
16 INFAMOUS DOWNWARD SPIRAL." AND SO THAT WAS THE FIRST TIME I'D
17 ACTUALLY EVER HEARD THAT PHRASE USED.
18 THE COURT: ALL RIGHT. I BELIEVE YOU HAVE BEFORE
19 YOU EXHIBIT 983 OR DID HAVE IT AT ONE POINT.
20 THE WITNESS: WHAT IS THAT EXHIBIT, YOUR HONOR?
21 THE COURT: THAT IS THIS PRO FORMA THAT WAS
22 PREPARED --
23 THE WITNESS: YES, I'VE GOT IT.
24 THE COURT: -- IN CONJUNCTION WITH MR. FALK, THE JOA
25 A.M. ONLY PRO FORMA.
1753
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1 THE WITNESS: YES, I HAVE THAT IN FRONT OF ME.
2 THE COURT: ALL RIGHT. NOW, IF I UNDERSTAND THAT
3 CORRECTLY, IT SHOWS THAT THE NEWSPAPER AGENCY NET EXCESS WOULD
4 HAVE INCREASED 20 AND A HALF MILLION DOLLARS PER YEAR IF THE
5 EXAMINER WERE CLOSED.
6 THE WITNESS: THAT'S WHAT IT APPEARS TO SHOW.
7 THE COURT: AND WE HAVE NOT FROM THIS EXHIBIT BUT
8 FROM ANOTHER EXHIBIT, I HAVE NOT NOTED THE EXHIBIT NUMBER --
9 COUNSEL CAN PERHAPS HELP ME. IT'S THE EXHIBIT THAT SHOWS THE
10 RESULTS OF THE EXAMINER FROM THE INCEPTION OF THE JOINT
11 OPERATING AGREEMENT THROUGH 1998.
12 MR. CONNELL: EXHIBIT 91.
13 THE COURT: IS THAT 91?
14 MR. ALIOTO: I THINK THAT'S RIGHT.
15 MR. CONNELL: THAT'S THE 1965 THROUGH 1998 --
16 THE COURT: YES.
17 MR. CONNELL: YES, SIR, 91.
18 THE COURT: YES. DOES THE WITNESS HAVE THAT?
19 MR. CONNELL: I'LL GIVE HIM A COPY.
20 THE COURT: ALL RIGHT. I'M ONLY GOING TO ASK YOU
21 ABOUT 1998 ON THIS EXHIBIT, AND I REALIZE THAT WE'RE COMPARING
22 1999 WITH 1998, BUT JUST USING THOSE NUMBERS FOR ORDERS OF
23 MAGNITUDE.
24 IF I UNDERSTAND EXHIBIT 91, IT SHOWS THAT THE
25 EXAMINER-ONLY OPERATING EXPENSES NET OF EXAMINER-ONLY OTHER
1754
ROSSE - RECROSS / SHULMAN
1 INCOME WAS APPROXIMATELY 29 AND A HALF MILLION DOLLARS DURING
2 CALENDAR 1998. IS THAT HOW YOU READ --
3 THE WITNESS: THIS IS -- THE LINE SAYS EXAMINER --
4 IT SHOWS, FIRST OF ALL, EXAMINER'S SHARE OF AGENCY EXCESS --
5 THE COURT: CORRECT.
6 THE WITNESS: -- 51 MILLION. THEN IT SHOWS
7 EXAMINER-ONLY OPERATING EXPENSES OF 29,900,000, CORRECT.
8 THE COURT: RIGHT. AND THEN THERE'S SOME
9 EXAMINER-ONLY INCOME ABOUT A HALF A MILLION DOLLARS.
10 THE WITNESS: YES.
11 THE COURT: SO ROUGHLY IT'S 29 AND A HALF MILLION.
12 THE WITNESS: YES, SIR.
13 THE COURT: THAT DOES NOT INCLUDE HEARST'S PORTION
14 OF CAPITAL EXPENDITURES --
15 THE WITNESS: THAT'S CORRECT, WHICH IS DOWN BELOW.
16 THE COURT: -- FOR THE NEWSPAPER AGENCY WHICH WERE
17 ABOUT THREE AND A THIRD MILLION DOLLARS?
18 THE WITNESS: THAT'S CORRECT.
19 THE COURT: ALL RIGHT. WELL, ADDING THAT UP, IF I'M
20 DOING THIS CORRECTLY, THE NET GAIN TO THE PARTIES TO THE JOINT
21 OPERATING AGREEMENT CLOSING THE EXAMINER WOULD BE ABOUT
22 $50 MILLION; IS THAT CORRECT?
23 THE WITNESS: SAY THAT AGAIN?
24 THE COURT: WELL, I'M SIMPLY ADDING 29 AND A HALF TO
25 20 AND A HALF --
1755
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1 THE WITNESS: YES.
2 THE COURT: -- AND SAYING THAT ASSUMING THE '98
3 FIGURES APPLY IN 1999, THAT THE NET GAIN OF CLOSING THE
4 EXAMINER TO BOTH PARTIES WOULD BE APPROXIMATELY $50 MILLION.
5 THE WITNESS: I'M NOT SURE THAT THAT'S A FAIR
6 INFERENCE BECAUSE --
7 THE COURT: ALL RIGHT. WHY IS IT NOT?
8 THE WITNESS: WELL, FOR ONE THING, CLOSING THE
9 EXAMINER WOULD NOT DO AWAY WITH THE DEPRECIATION EXPENSES THAT
10 ARE THERE. OKAY, THOSE NEED TO BE ACCOUNTED FOR. THEY'RE
11 GOING TO HAVE TO BE PAID. YOU'RE GOING TO HAVE TO EXPENSE THE
12 DEPRECIATION ONE WAY OR ANOTHER, SO THAT WOULD SHOW UP.
13 THE COURT: WOULDN'T THAT BE INCLUDED IN THE
14 NEWSPAPER AGENCY EXPENDITURES?
15 THE WITNESS: NO. NO, IT'S INCLUDED IN THE -- IT'S
16 INCLUDED -- EACH OF THE PARTNERS, EACH OF THE SEPARATE
17 COMPANIES CLAIMS DEPRECIATION EXPENSE SEPARATELY. YOU SEE THAT
18 IN LINE --
19 THE COURT: I SEE THERE IS NO DEPRECIATION IN THE
20 PRO FORMA, EXHIBIT --
21 THE WITNESS: YOU SEE DOWN BELOW IT SAYS "ADD
22 DEPRECIATION" ON THIS ONE YOU WERE JUST SHOWING ME --
23 THE COURT: ALL RIGHT.
24 THE WITNESS: -- DOWN BELOW "NET INCOME." AND SO
25 THERE IS, IN FACT, I THINK 6,400,000 OF DEPRECIATION THAT NEEDS
1756
ROSSE - RECROSS / SHULMAN
1 TO BE ADDED.
2 THE COURT: OKAY. WHAT DOES THAT DO TO THE
3 ANALYSIS?
4 THE WITNESS: THAT WOULD REDUCE -- YOU SAID
5 50 MILLION WOULD BE SAVED.
6 THE COURT: CORRECT.
7 THE WITNESS: THAT WOULD REDUCE THAT AMOUNT.
8 THEN THERE'S A SECOND LARGE COMPONENT. CURRENTLY
9 THE EXAMINER, I GUESS BEARING THE BULK OF THE EXPENSE FOR
10 PREPARING THE EDITORIAL PRODUCT FOR THE SUNDAY PAPER, IF YOU
11 CLOSE THE EXAMINER AND SHUT DOWN THAT NEWSROOM, YOU WOULD NEED
12 TO ADD TO THE NEWSROOM FOR THE CHRONICLE IN ORDER TO BE ABLE TO
13 STAFF THE WEEKEND PRODUCT. THAT'S A VERY SUBSTANTIAL AMOUNT OF
14 MONEY.
15 THE COURT: OKAY.
16 THE WITNESS: IT'S PROBABLY ANOTHER 10 MILLION OR
17 SO.
18 BUT THAT GETS YOU CLOSER TO THE RIGHT NUMBER.
19 HOWEVER, I WOULD ARGUE, YOUR HONOR, THAT THAT'S NOT ACTUALLY
20 THE RIGHT WAY TO GET TO THAT NUMBER. THE RIGHT WAY TO GET TO
21 THAT NUMBER IS TO GO TO THE EXPENSES THEMSELVES AND TO THE
22 REVENUES THEMSELVES AND EXAMINE WHICH OF THOSE COULD BE AVOIDED
23 OR WHICH YOU WOULD HAVE TO FOREGO IF YOU WERE TO CLOSE THE
24 EXAMINER, WHICH IS WHAT THE A.M. STUDY WAS TRYING TO DO AND
25 WHICH ALSO WE DID IN THE INCREMENTAL STUDY THAT WAS A PART OF
1757
ROSSE - RECROSS / SHULMAN
1 EVIDENCE.
2 THE COURT: ALL RIGHT. SO YOU DID THIS SAME
3 ANALYSIS, TRIED TO REACH THE SAME CONCLUSIONS, AND THAT IS
4 REFLECTED IN YOUR INCREMENTAL ANALYSIS; IS THAT RIGHT?
5 THE WITNESS: THAT'S CORRECT. THAT WAS DONE
6 INDEPENDENTLY OF THE A.M. STUDY AND WAS DONE UNDER SOMEWHAT
7 DIFFERENT ASSUMPTIONS, ALTHOUGH I GOT VERY SIMILAR RESULTS.
8 THE COURT: AND THE CONCLUSIONS YOU DREW FROM THAT
9 ANALYSIS WERE?
10 THE WITNESS: IT WOULD BE ABOUT 20 MILLION -- ABOUT
11 $20 MILLION GAIN.
12 THE COURT: TO BOTH PARTIES?
13 THE WITNESS: WELL, COMBINED TOTAL. THAT IS, WE DID
14 NOT TRY TO SEPARATE THEM OUT. WE SIMPLY TREATED THE ENTIRE
15 ORGANIZATION, THE JOA, THE ENTIRE JOA ORGANIZATION, NAMELY THE
16 PRINTING COMPANY AND THE EXAMINER AND THE CHRONICLE, AS THOUGH
17 THEY WERE A SINGLE ENTERPRISE AND WE DIDN'T PAY ANY ATTENTION
18 TO WHO WAS PAYING WHAT. WE SIMPLY WENT THROUGH AND CALCULATED
19 WHAT PART OF THE CURRENTLY -- OF THE CURRENT EXPENSE COULD BE
20 AVOIDED OR WHAT PART OF CURRENT INCOME WOULD BE FOREGONE IF YOU
21 CLOSE THE EXAMINER.
22 AND WHEN WE GOT ALL DONE, WE LOOKED -- WE COMPARED
23 THAT NUMBER WITH THE GAIN. WHAT WE FOUND WAS THAT THE CHANGE
24 IN PROFITABILITY -- LET ME SAY IT MORE ACCURATELY.
25 WE LOOKED AT CHANGE IN REVENUE. WE LOOKED AT THE
1758
ROSSE - RECROSS / SHULMAN
1 CHANGE IN COSTS. FROM THAT WE COULD LOOK AT THE CHANGE IN
2 TOTAL PROFITABILITY AND THAT CHANGE IN TOTAL PROFITABILITY WAS
3 SOMETHING OVER 20 MILLION. I THINK ABOUT 22 MILLION.
4 OKAY. NOW, HOW THAT GOT DIVIDED, HOW THAT WOULD GET
5 DIVIDED BY THE PARTIES TO THIS IS ANOTHER MATTER. WE DIDN'T
6 TRY TO SORT THAT OUT.
7 THE COURT: OKAY. LET ME ASK YOU TO STATE THE
8 CONCLUSION THAT YOU DREW FROM THAT ANALYSIS.
9 THE WITNESS: THE CONCLUSION I DREW FROM THAT
10 ANALYSIS WAS THAT THE EXAMINER IS A DRAG ON THE OVERALL
11 NEWSPAPER OPERATIONS AND IT'S COSTING THE OVERALL NEWSPAPER
12 OPERATION A FAIR AMOUNT OF MONEY TO PRODUCE THE EXAMINER; AND
13 THAT IF IT WERE A SINGLE OWNERSHIP, IT WOULD HAVE BEEN CLOSED
14 SOME TIME AGO.
15 AND THAT, FURTHERMORE, THAT'S PART OF THE REASON WHY
16 I STATED IN MY TESTIMONY YESTERDAY THAT I THINK SAN FRANCISCO
17 IS CURRENTLY BEING UNDERSERVED BY ITS NEWSPAPERS BECAUSE THEY
18 SIMPLY ARE NOT INVESTING AS MUCH IN THE PRODUCT AS THEY SHOULD
19 BE.
20 THE COURT: OKAY. THAT'S A SUBJECT I WANTED TO MOVE
21 TO NEXT. YOU'VE USED THE TERM THAT SAN FRANCISCO WAS BEING
22 UNDERNEWSPAPERED.
23 THE WITNESS: THAT'S THE WORD I USED, YOUR HONOR,
24 YES.
25 THE COURT: AND BY THAT YOU MEAN THAT THE
1759
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1 COMPETITION WHICH THE SAN FRANCISCO PAPERS WERE PROVIDING IN
2 THE MARKET AS A WHOLE WAS LESS VIGOROUS THAN IT COULD BE?
3 THE WITNESS: THAT'S CORRECT.
4 THE COURT: AND A WAY TO INCREASE THE LEVEL OF
5 COMPETITION WHICH THE SAN FRANCISCO NEWSPAPERS WOULD GIVE
6 VIS-A-VIS ALL OF THE OTHER MEDIA OUTLETS WOULD BE BY CLOSING
7 THE EXAMINER?
8 THE WITNESS: THAT'S RIGHT.
9 THE COURT: AND THE OVERALL COMPETITIVE SITUATION
10 WOULD BE BETTER; IS THAT YOUR INTERPRETATION?
11 THE WITNESS: THAT'S MY CONCLUSION, YOUR HONOR, YES.
12 THE COURT: AND BY STATING THAT THE OVERALL
13 COMPETITIVE SITUATION WOULD BE BETTER, YOU MEAN WHAT?
14 THE WITNESS: WHAT I MEAN BY THAT IS THAT THE
15 PRODUCT THAT WOULD BE PRODUCED WOULD BE A BETTER NEWSPAPER. IT
16 WOULD -- SOME OF THE INEFFICIENCIES THAT HAVE BEEN INTRODUCED
17 BY THE EXISTENCE OF THE JOA COULD BE ELIMINATED. THE EDITORIAL
18 AND NEWS RESOURCES COULD BE CONCENTRATED AND MADE LARGER; THAT
19 IS, THE AMOUNT OF NEWS STAFF NEEDED AND USED TO PRODUCE AN
20 IMPROVED CHRONICLE WOULD BE LARGER THAN IS NOW PRESENTLY BEING
21 USED TO PRODUCE THE CHRONICLE.
22 THE SUNDAY PAPER WOULD BECOME A MUCH STRONGER
23 PRODUCT THAN IT IS NOW, IN MY VIEW, IF IT WERE BETTER MANAGED.
24 IT COULD -- IT WOULD PROVIDE READERS AND ADVERTISERS BOTH WITH
25 A NEWSPAPER THAT SERVES THEIR INTERESTS BETTER THAN THE
1760
ROSSE - RECROSS / SHULMAN
1 NEWSPAPERS THAT PRESENTLY EXIST.
2 IT WOULD PROVIDE STRONGER COMPETITION FOR THE OTHER
3 MEDIA, FOR THE REGIONAL NEWSPAPER -- FOR THE LOCAL NEWSPAPERS
4 AND FOR THE OTHER ENTITIES THAT COMPETE IN THIS MARKETPLACE.
5 IT WOULD PARTICULARLY BE A STRONGER AND I BELIEVE A MORE
6 BELIEVABLE AND CREDIBLE VOICE IN COMPETITION WITH THE -- WITH
7 TELEVISION, WHICH IS A MAJOR COMPETITOR.
8 I THINK THE --
9 THE COURT: WOULD READERS BE BETTER OFF?
10 THE WITNESS: YES.
11 THE COURT: WOULD ADVERTISERS BE BETTER OFF?
12 THE WITNESS: YES, IN MY VIEW.
13 THE COURT: SO I GUESS YOUR TESTIMONY IS THAT THE
14 MONARCH OF THE DAILIES IS BETTER DEAD THAN READ.
15 (LAUGHTER)
16 THE WITNESS: HAVE YOU COPYRIGHTED THAT LINE, YOUR
17 HONOR?
18 (LAUGHTER)
19 THE COURT: NOW, THE TYPES OF ADVERTISING THAT YOU
20 SPOKE ABOUT WERE DISPLAY ADVERTISING, CLASSIFIED AND RETAIL?
21 THE WITNESS: NO. "DISPLAY" AND "RETAIL" ARE
22 GENERALLY USED MORE OR LESS SYNONYMOUSLY. "GENERAL" AND
23 "NATIONAL" ARE USED MORE OR LESS SYNONYMOUSLY.
24 THE COURT: OKAY. NOW, DR. COMANOR IN HIS TESTIMONY
25 DESCRIBED TWO THEORIES OF ANTITRUST. ALLOCATIVE EFFICIENCY WAS
1761
ROSSE - RECROSS / SHULMAN
1 ONE THEORY, NUMBER OF COMPETITORS WAS THE OTHER THEORY THAT HE
2 DESCRIBED.
3 FIRST, ARE THERE TWO SCHOOLS OF THOUGHT IN THIS AREA
4 AND DO YOU AGREE THAT THOSE ARE TWO SCHOOLS OF THOUGHT THAT
5 EXIST?
6 THE WITNESS: I'VE NEVER RECOGNIZED THOSE AS TWO
7 SCHOOLS OF THOUGHT. I'VE NOT HEARD OF THAT BEFORE.
8 THE COURT: BUT HAVE YOU HEARD THE TERM "ALLOCATIVE
9 EFFICIENCY"?
10 THE WITNESS: OH, ABSOLUTELY, YOUR HONOR.
11 THE COURT: WHAT IS THAT?
12 THE WITNESS: AND I'VE ALSO HEARD PEOPLE TALK ABOUT
13 USE OF THE LAW TO PROTECT COMPETITORS, HOWEVER NOT USUALLY IN
14 AN ANTITRUST CONTEXT.
15 THE COURT: ALL RIGHT. AND WHAT DOES "ALLOCATIVE
16 EFFICIENCY" MEAN IN YOUR VIEW?
17 THE WITNESS: "ALLOCATIVE EFFICIENCY" MEANS GETTING
18 THE BEST PRODUCTS MADE AVAILABLE TO BUYERS, ADVERTISERS AND
19 READERS IN THIS CASE, AT THE LOWEST POSSIBLE PRICE.
20 THE COURT: OKAY. AND IN THE CONTEXT OF ALLOCATIVE
21 EFFICIENCY, DO YOU HAVE AN OPINION ON WHETHER ALLOCATIVE
22 EFFICIENCY IS ENHANCED BY TRANSACTIONS WHICH OCCUR AT A
23 NEGATIVE PRICE?
24 THE WITNESS: GENERALLY NOT, YOUR HONOR.
25 THE COURT: YOU HAVE NO OPINION OR --
1762
ROSSE - RECROSS / SHULMAN
1 THE WITNESS: I HAVE AN OPINION. GENERALLY --
2 THE COURT: WHAT IS YOUR OPINION?
3 THE WITNESS: MY OPINION IS ALLOCATIVE EFFICIENCY IS
4 NOT GENERALLY VERY WELL SERVED BY NEGATIVE PRICE TRANSACTIONS.
5 THE COURT: AND WHY IS THAT?
6 THE WITNESS: BECAUSE BASICALLY THAT'S A -- IN ORDER
7 TO GENERATE A NEGATIVE PRICE, YOU HAVE TO BE DOING SOMETHING
8 THAT THE MARKET WOULDN'T OTHERWISE DO EASILY, AND GENERALLY THE
9 MARKET CARRIES OUT ALLOCATIVE EFFICIENCY MOST EFFECTIVELY.
10 A GOOD EXAMPLE OF A NEGATIVE PRICE PRODUCT, HOWEVER,
11 THAT IS -- THAT IS -- WHERE IT IS ALLOCATIVELY EFFICIENT WOULD
12 BE IN TERMS OF GARBAGE DISPOSAL WHERE YOU PAY -- YOU SELL THAT
13 AT A NEGATIVE PRICE IN ORDER TO GET RID OF IT.
14 THE COURT: ALL RIGHT. GARBAGE DISPOSAL.
15 THE WITNESS: I JUST USE THAT AS A SIMPLE EXAMPLE,
16 YOUR HONOR, OF A CASE WHERE ALLOCATIVE EFFICIENCY --
17 MR. ALIOTO: THAT'S WORSE THAN DEAD, JUDGE.
18 (LAUGHTER)
19 THE WITNESS: -- A CASE WHERE -- AND, AGAIN, I
20 DIDN'T MEAN TO IMPLY ANYTHING AT ALL ABOUT THAT EXAMPLE OTHER
21 THAN TO POINT OUT THAT THERE ARE CASES, THERE ARE CASES WHERE
22 NEGATIVE PRICES CAN BE ALLOCATIVELY EFFICIENT.
23 THE COURT: ALL RIGHT. WELL, NOW, ARE YOU AWARE
24 THAT THE TRANSACTION THAT HEARST HAS ENTERED INTO WITH THE FANG
25 GROUP INVOLVES A NEGATIVE PRICE?
1763
ROSSE - RECROSS / SHULMAN
1 THE WITNESS: YES, I AM.
2 THE COURT: AND DO YOU THINK THAT A NEGATIVE PRICE
3 TRANSACTION IN THAT REGARD ENHANCES ALLOCATIVE EFFICIENCY?
4 THE WITNESS: I DO NOT.
5 THE COURT: WOULD YOU EXPLAIN WHY NOT?
6 THE WITNESS: WELL, BECAUSE, AS I SAID IN MY DIRECT
7 TESTIMONY, I BELIEVE THAT THE RESOURCES THAT ARE BEING USED TO
8 FUND THAT NEGATIVE PRICE COULD BE BETTER USED TO PROVIDE
9 PRODUCTS THAT CONSUMERS ARE PREPARED TO PAY FOR IN SUPPORT WITH
10 THEIR DOLLARS. CONSUMERS BY THAT I MEAN ADVERTISERS AND
11 READERS.
12 THE COURT: SO ADVERTISERS AND READERS WOULD BE
13 BETTER OFF IF THAT TRANSACTION WERE NOT CONSUMMATED?
14 THE WITNESS: THAT'S MY OPINION, YOUR HONOR, YES.
15 THE COURT: YOU SAID THAT TECHNOLOGIES ARE PROVING
16 THAT ENTRY BARRIERS IN THE NEWSPAPER INDUSTRY ARE BECOMING
17 LOWER.
18 THE WITNESS: YES. I NEED TO -- I DID SAY THAT. I
19 NEED TO EXPLAIN THAT A LITTLE MORE FULLY THAN I DID.
20 THE COURT: ALL RIGHT. IF YOU WOULD.
21 THE WITNESS: THE TECHNOLOGIES HAVE REDUCED THE COST
22 OF CREATING TYPESETTING, OF PAGE MAKE-UP, OF PREPARING
23 MATERIALS FOR THE PRESS, OF COLLECTING DATA. THEY'VE MADE
24 POSSIBLE KINDS OF PRODUCTS THAT NEVER EXISTED BEFORE. AND I
25 WAS TESTIFYING AT THAT POINT IN THE CONTEXT OF THE GROWTH OF
1764
ROSSE - RECROSS / SHULMAN
1 THE NUMBER OF WEEKLY NEWSPAPERS AND THEIR STRENGTH AND OF
2 SHOPPING GUIDES OF VARIOUS KINDS AND OF PUBLICATIONS LIKE REAL
3 ESTATE GUIDES AND AUTO TRADERS AND EMPLOYMENT GUIDES, AND SO
4 FORTH AND SO ON.
5 FORTY YEARS AGO THOSE WOULD NOT HAVE BEEN ECONOMIC.
6 TODAY THEY ARE, PRIMARILY BECAUSE OF CHANGING TECHNOLOGY. THE
7 LOWERING COST OF ACTUALLY CARRYING OUT PUBLICATION HAS DROPPED
8 SIGNIFICANTLY, AND THAT'S BROUGHT IN LARGE NUMBERS OF NEW
9 COMPETITORS OF A DIFFERENT KIND THAN HAS -- I IN FACT POINTED
10 OUT THAT I THOUGHT THAT A LOT OF THE PROBLEMS THAT EVENING
11 PAPERS RAN INTO WERE DUE EXACTLY TO THAT KIND OF NEW PRODUCT
12 BEING MADE AVAILABLE IN THE MARKETPLACE AT RELATIVELY LOW
13 PRICES.
14 THE NEW TECHNOLOGIES, OF COURSE, HAVE MADE IT
15 POSSIBLE FOR NEWSPAPERS TO REDUCE THEIR COSTS AND IMPROVE THEIR
16 PRODUCTS; AND THE AMOUNT OF PRODUCT IMPROVEMENT THAT'S TAKEN
17 PLACE IS REALLY QUITE REMARKABLE. IF YOU LOOK AT NEWSPAPERS
18 TODAY AS COMPARED WITH WHAT THEY WERE 30 YEARS AGO OR 40 YEARS
19 AGO, THEY'RE REALLY DRAMATICALLY DIFFERENT PRODUCTS AND MUCH
20 IMPROVED. THEY ALSO ARE CHEAPER TO USE; THAT IS, THE NEW
21 TECHNOLOGIES PERMIT YOU TO DO A BETTER JOB OF PRODUCING AT A
22 LOWER COST.
23 THERE ARE STILL, HOWEVER, SUBSTANTIAL BARRIERS TO
24 ENTRY INTO THE DAILY NEWSPAPER MARKETPLACE; AND THE REASON
25 THERE ARE IS BECAUSE IT'S NOT THE TECHNOLOGIES THAT CREATES
1765
ROSSE - RECROSS / SHULMAN
1 THAT BARRIER SO MUCH AS IT IS THE FACT THAT YOU NEED TO BUILD A
2 READERSHIP AND A FOLLOWING AND BUILD A FRANCHISE, IF YOU WILL.
3 NEWSPAPERS ARE SOLD ON A DAY-TO-DAY BASIS BECAUSE
4 READERS EXPECT TO FIND THE MATERIAL IN IT THAT'S INTERESTING,
5 AND YOU DON'T BUILD UP THAT EXPECTATION OVERNIGHT. YOU DO IT
6 BY PROVIDING A CREDIBLE PRODUCT OVER A FAIRLY EXTENDED PERIOD
7 OF TIME.
8 AND ADVERTISERS DON'T BUY THE NEWSPAPER SIMPLY
9 BECAUSE YOU SAY YOU HAVE DISTRIBUTED IT FREE. THEY WANT TO
10 MAKE SURE THAT, IN FACT, THEY'RE GOING TO GET RESULTS FROM IT.
11 YOU BUILD UP THAT KIND OF FRANCHISE ONLY SOLELY AND CAREFULLY
12 OVER A PERIOD OF TIME.
13 THE EXAMPLE I GAVE AT ANOTHER POINT DURING MY
14 TESTIMONY WAS OF THE -- OF U.S.A. TODAY WHICH STARTED WITH ZERO
15 FRANCHISE BUT A LOT OF RESOURCES AND IT TOOK THREE OR FOUR
16 YEARS BEFORE THEY EVEN BEGAN TO GET MONTHS IN WHICH THEY BROKE
17 EVEN. AND I DON'T KNOW HOW MANY HUNDREDS OF MILLIONS OF
18 DOLLARS WERE INVESTED IN THAT PRODUCT BEFORE IT WAS FINALLY
19 ESTABLISHED. THAT'S AN EXAMPLE OF HOW A FRANCHISE WAS BUILT
20 AND BUILT SOLELY AND CAREFULLY AT HUGE EXPENSE.
21 SO THE BOTTOM LINE ON THIS ALL IS THAT IN TERMS OF
22 THE PRODUCTION TECHNOLOGY, ENTRY HAS NEVER BEEN EASIER. IT'S
23 VERY EASY. IT TAKES -- NOT ONLY IS IT EASY TO BUY THIS STUFF,
24 A LOT OF IT COMES DIRECTLY OFF THE SHELF, BUT YOU CAN RENT A
25 LOT OF IT. YOU CAN NOW RENT PRESS CAPACITY. YOU CAN RENT
1766
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1 HIGHER -- HAVE YOUR TYPESETTING DONE.
2 ONE OF THE THINGS THAT WE DID, JUST TO GIVE AN
3 EXAMPLE OF THIS, IS THAT WE RAN A MAGAZINE BUSINESS AND IN OUR
4 MAGAZINE BUSINESS WE OWNED NOT ONE WIT OF PRODUCTION FACILITY.
5 ALL THE MAGAZINE CONSISTS OF, BY AND LARGE, IS A STAFF TO SELL
6 ADVERTISING AND AN EDITORIAL STAFF, AND EVERYTHING ELSE IS
7 CONTRACTED. THAT'S POSSIBLE NOW. IT WASN'T POSSIBLE 40 YEARS
8 AGO.
9 THE COURT: I GATHER YOUR TESTIMONY IS THAT BECAUSE
10 OF THE NEED TO BUILD A FRANCHISE VALUE, BARRIERS TO ENTRY FOR A
11 METROPOLITAN OR REGIONAL DAILY NEWSPAPER ARE STILL VERY HIGH.
12 THE WITNESS: CORRECT.
13 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
14
15
16
17
18
19
20
21
22
23
24
25
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1 THE COURT: BUT ENTRY BARRIERS WITH RESPECT TO
2 SO-CALLED "NICHE" PUBLICATIONS MAY ACTUALLY BE DECLINING?
3 THE WITNESS: CORRECT.
4 THE COURT: IT WAS YOUR TESTIMONY THAT YOU BELIEVE
5 THE FANG GROUP WOULD PRODUCE A NICHE PRODUCT RATHER THAN A
6 REGIONAL DAILY?
7 THE WITNESS: THAT'S CORRECT, YOUR HONOR.
8 THE COURT: WHAT IS THE EFFECT OF THE NEGATIVE PRICE
9 FEATURES OF HEARST'S ARRANGEMENT WITH THE FANG GROUP UPON
10 BARRIERS TO ENTRY INTO THE NICHE PUBLICATION FIELD?
11 THE WITNESS: THERE ARE STILL BARRIERS TO ENTRY
12 THERE. THAT IS, WHEREVER YOU CREATE A MASS MEDIA PRODUCT YOU
13 HAVE TO CREATE A FRANCHISE. IT'S JUST A QUESTION OF THE
14 RELATIVE SIZE AND THE --
15 THE COURT: BUT MY QUESTION IS WHAT IS THE EFFECT OF
16 THE SUBSIDY WHICH HEARST AGREED TO PROVIDE TO THE FANG GROUP ON
17 BARRIERS TO ENTRY OF OTHER COMPETITORS INTO THAT NICHE.
18 THE WITNESS: I UNDERSTAND YOUR QUESTION.
19 LET ME PREFACE THIS BY SAYING THAT I VIEW THE
20 SUBSIDY AS PROVIDING THE FANG GROUP AN OPPORTUNITY TO CREATE A
21 FRANCHISE AND, AS I SAID, I THINK THE CHANCES ARE -- ARE NOT
22 GREAT THAT THEY WILL BE ABLE TO DO IT, BUT THEY ARE CERTAINLY
23 NOT ZERO. I WOULD BE DISINCLINED TO BET AGAINST THEM.
24 IT WILL -- I DON'T THINK IT HAS MUCH IMPACT ON
25 OTHER -- OTHER POSSIBLE ENTRANTS BECAUSE THERE ARE STILL
1768
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1 OTHER -- THERE ARE OTHER -- OTHER NICHES THAT PEOPLE COULD
2 FIND.
3 THE COURT: I SEE.
4 THE WITNESS: I DON'T THINK IT WOULD HAVE A BIG
5 IMPACT ON ENTRY FOR OTHER PARTIES IF THEY WANTED TO ENTER.
6 THE COURT: AND THAT'S BECAUSE OF THE ABILITY OF
7 PARTIES TO DIFFERENTIATE THEIR PRODUCTS?
8 THE WITNESS: THAT'S CORRECT, YOUR HONOR.
9 THE COURT: AND A NICHE PUBLICATION WOULD HAVE TO BE
10 DIFFERENTIATED EITHER BY CONTENT OR BY GEOGRAPHIC PENETRATION
11 OR SOME OTHER FEATURE OR CHARACTERISTIC; IS THAT FAIR?
12 THE WITNESS: THAT'S CORRECT.
13 THE COURT: ALL RIGHT. THANK YOU, DR. ROSSE, FOR
14 YOUR TESTIMONY, SIR. YOU MAY STEP DOWN.
15 MR. BALABANIAN: YOUR HONOR, MIGHT I ASK A COUPLE OF
16 QUESTIONS RELATING TO THE TESTIMONY WHICH DR. ROSSE HAS JUST
17 GIVEN?
18 THE COURT: VERY WELL.
19 REDIRECT EXAMINATION
20 BY MR. BALABANIAN:
21 Q. DR. ROSSE, FROM THE STANDPOINT OF ALLOCATIVE EFFICIENCY,
22 WHICH IS WORSE, CONTINUING THE JOA WITH ITS LARGER SUBSIDY OR
23 THE FANG TRANSACTION WITH ITS SMALLER SUBSIDY?
24 A. THAT'S WHAT ECONOMISTS WOULD CALL A "SECOND BEST CHOICE."
25 THE -- I THINK THE FANG SUBSIDY REPRESENTS A -- A SMALLER
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ROSSE - REDIRECT / BALABANIAN
1 ALLOCATIVE -- A SMALLER DISORGANIZATION OF ALLOCATIVE
2 EFFICIENCY AND A RATHER INTERESTING EXPERIMENT.
3 Q. I TAKE IT, THEN, SIR, THAT YOU WOULD SAY THAT A
4 $69 MILLION SUBSIDY IN THE CASE OF THE FANGS INVOLVES LESS
5 VIOLENCE TO ALLOCATIVE EFFICIENCY THAN A $250 MILLION SUBSIDY?
6 A. THAT'S CORRECT.
7 Q. FINALLY, SIR, TO THE EXTENT THAT THE FANG TRANSACTION IS
8 ABLE TO CREATE COMPETITION WHICH DOES NOT NOW EXIST, AT LEAST
9 FOR ADVERTISERS AND POTENTIALLY FOR READERS, WOULD THAT NET
10 INCREMENT IN COMPETITION TEND TO REDUCE THE ALLOCATIVE
11 INEFFICIENCY OF THE NEGATIVE PURCHASE PRICE?
12 A. YES, IT WOULD. AND PERHAPS I COULD SAY JUST A WORD MORE.
13 THE -- OBVIOUSLY, WHENEVER YOU LOOK AT ALLOCATIVE EFFICIENCY
14 YOU LOOK AT GAINS VERSUS LOSSES VERSUS COSTS.
15 IN THIS CASE THE -- IF THE FANG GROUP NEVER
16 SUCCEEDED AT ALL, THEN IT'S ALL DEAD LOSS. IF THEY DO SUCCEED
17 IN PRODUCING A PRODUCT THAT BECOMES A REAL PART OF THE
18 CONSUMERS' AND ADVERTISERS' MENU, THEN THAT WILL BE A GAIN SO
19 YOU HAVE TO MATCH THOSE GA