Inquiry into weeklies is coming to town

PROSECUTORS investigating whether the nation’s two largest alternative newspaper chains violated federal and state antitrust laws when they closed competing publications in Los Angeles and Cleveland will begin taking sworn testimony in Southern California during the first week of January, according to law enforcement officials and witnesses whose depositions already have been scheduled.

Sources with firsthand knowledge say the probe has focused increasingly on whether the deal between New York-based Village Voice Media and New Times Media of Phoenix has influenced both advertising rates and the amount and quality of local news in both cities. The latter line of inquiry, those sources say, involves not only questions about whether closing the two alternative weeklies reduced overall news coverage, but also whether the absence of competition has allowed the surviving papers to de-emphasize local reporting and analysis in favor of more lucrative lifestyle and entertainment journalism.

“State and federal antitrust laws prohibit deals that unreasonably deprive consumers of the benefits of competition resulting in higher prices for inferior products and services,” said L.A. County Deputy Dist. Atty. Kathleen Tuttle, who heads the antitrust section of the D.A.’s consumer protection division. “The law does not condemn all agreements between companies. Only those that threaten to raise prices to consumers or to deprive them of new or better products.”

According to antitrust lawyer Don T. Hibner Jr., “Editorial content has been deemed a federal concern under the Newspaper Preservation Act. To the degree this deal removes editorial choice from consumers, it is bound to concern the U.S. Department of Justice.” (The 32-year-old federal statute allows newspapers to merge business operations in the interest of maintaining separate editorial voices.)

In October, New Times Media agreed to shut down its 6-year-old Los Angeles paper in exchange for more than $8 million, ceding its Southern California niche to L.A. Weekly, which is owned by Village Voice Media. Village Voice Media agreed to close its Cleveland Free Times in exchange for a much smaller cash payment from New Times, which continues to publish its Cleveland Scene.

Less than a month later, a joint task force of prosecutors from the U.S. Department of Justice, the California and Ohio attorneys general and the L.A. County district attorney’s office served both chains with a demand for all documents, correspondence, e-mails and telephone messages relating to their arrangement. Shortly afterward, officials began interviewing potential witnesses in both cities. Last month, the task force began taking sworn testimony from witnesses in Cleveland, where some depositions lasted as long as 10 hours.

This week, prosecutors began scheduling depositions to be taken in downtown Los Angeles’ federal courthouse during the first two weeks of January. Among those whose testimony under oath already has been set are three former L.A. Weekly executives, one-time publisher Michael Sigmund, former classified advertising director Jim Kaplan, and Paul Davis, who managed production. Former local government columnist Mark Haefele, who quit the Weekly over what he regarded as inappropriate editorial intrusion, also is scheduled to testify.

According to sources familiar with the investigation, prosecutors also have been interviewing advertisers in Los Angeles about the degree to which the Weekly and New Times formerly competed for their business and about whether rates have increased since the deal was struck. Sources said representatives of a number of those businesses, particularly in the concert and film sectors, will also be deposed under oath.

Haefele said Thursday that he “had a long discussion last month with the DOJ, and they asked me whether I thought that Village Voice Media’s takeover of New Times Los Angeles in any way reflected a general de-emphasis of local news on the part of VVM. The Justice Department lawyers brought this up, and I told them I thought it was part and parcel of a Village Voice Media policy that not only leaves us with one alternative newspaper in L.A., but also one that is, on the whole, less interested in local news and more interested in style and fashion. The DOJ asked me whether my column was affected by this policy and whether I was pushed to leave. They wondered if there was less space in the paper for hard news, particularly local news than there used to be. I told them yes.”

Several L.A. Weekly journalists, all of whom asked not to be identified, said they too believe the paper is not as interested as it once was in local news and commentary. “The number of news-related covers definitely has gone down,” said one, who cited Laurie Ochoa’s appointment as editor last year, “as a clear sign that New York wants a softer focus for the paper.” Ochoa formerly worked as editor of The Times’ food section and at Gourmet magazine. “People are sort of in retreat here,” the Weekly staff member said. “This is not a paper that carries big causes anymore.”

According to federal sources in Cleveland, prosecutors have raised similar concerns during depositions there. “Cleveland Scene was started 30 years ago as a concert promotion rag,” one of those sources said. “The Free Times came along 10 years ago and provided a real alternative weekly, one that had biting reporting and did some deep digging into local politics and corruption. The Scene began doing one news story or so an issue, but there really was a clear editorial difference and this deal has swept that away.”

Village Voice Media is a privately held company, but witnesses familiar with the L.A. Weekly’s finances say the paper came under increasing pressure from CEO David Schneiderman to emphasize its profitable entertainment and lifestyle coverage after the Sept. 11 attack, which deeply depressed advertising revenue at the Village Voice.

At the same time, the witnesses said, annual return on equity at the Weekly declined from about 29% to 26%. The chain’s executives became concerned that the combined fall at their two crown jewels would undermine their ability to service the substantial debt incurred when the company was purchased from its previous owner.

Witnesses in both Cleveland and Los Angeles said prosecutors appear keenly interested in fashioning a remedy, perhaps by way of a settlement, that would restore competition to both cities’ alternative press markets. During the more than nine hours government lawyers questioned former Cleveland Free Times publisher Matt Fabyan, for example, they repeatedly returned to the question of what sort of help he would need to move forward with plans to start a new alternative paper there.

“I got the strong impression,” said one Los Angeles witness, “that the feds are less interested in leading people off in chains than they are in forcing a solution that returns things to the status quo ante.”