By AMANDA BRONSTAD
The Justice Department could take its time reviewing alternative weekly newspaper chain New Times Inc.’s proposed buy of the owner of the OC Weekly. But regulators aren’t expected to demand major changes for the sale to go through.
The deal, between New Times and Village Voice Media Inc., OC Weekly’s parent company, was announced late last month. It would create a publishing company with newspapers in 17 markets and annual revenue of $180 million.
Will Swaim, OC Weekly’s editor and publisher, said he doesn’t foresee changes for his Santa Ana-based paper, known for its entertainment coverage and stories about life and politics in the county.
“I think it’s a great deal,” Swaim said. “The New Times papers have a reputation for great journalism and good business; so do we.”
In the next several weeks, the Justice Department is set to ask executives at both publishing houses for documents and e-mails in order to determine what each company’s strategic business decisions have been in the various markets they publish.
The key for both privately held companies, according to antitrust experts, is to prove to the Justice Department that their proposed combination, which creates a company with about a quarter of alternative weekly circulation nationwide, wouldn’t hurt consumers by preventing competition.
Both companies paid hundreds of thousands of dollars in civil penalties two years ago to settle a legal claim brought by the Justice Department over the papers’ anti-competitive business practices.
New Times and Village Voice Media agreed to close papers in Los Angeles and Cleveland,where they competed against each other,so that each would hold a monopoly in one of the markets.
But the deal may not face many legal challenges.
“This transaction doesn’t alter the competitive terms in these markets because no papers are being shut down,” said David Schneiderman, chief executive of Village Voice Media, which owns five papers other than OC Weekly, including LA Weekly and New York flagship Village Voice.
When compared to previous legal issues, Schneiderman said, “Our lawyers think this is different.”
New Times and Village Voice are the largest players in an alternative weekly market once dominated by independent regional papers.
Village Voice, whose flagship publication has a weekly circulation of 250,000, was acquired in 2000 by an investor group that includes Schneiderman, a former editor, as well as several investment firms.
As part of last month’s long-anticipated deal, which excludes cash or stock payments, shareholders of Phoenix-based New Times, would own 62% of the company.
Right now, New Times is owned by a trust controlled by James Larkin, its chairman and chief executive, and Michael Lacey, its executive editor. Both will continue in those roles under the new company. Schneiderman would head the online efforts.
It is anticipated that the Village Voice investment group will be bought out by New Times’ shareholders in several years.
The proposed merger must obtain approval from the Federal Trade Commission under the Hart-Scott-Rodino Act. That means both companies are subject to a 30-day period of federal overview that is likely to get extended by several months.
One reason the deal may face more questions is because of the consent decree signed by both companies two years ago to end an antitrust suit brought by the Justice Department in 2002 that accused them of trying to create a monopoly in Los Angeles and Cleveland.
According to the Justice Department, both companies colluded to close the Village Voice’s Cleveland Free Times, which had competed with New Times’ Cleveland Scene, and to close New Times L.A., which had competed with LA Weekly.
They also agreed not to open competitive papers in those markets or sell the assets of their closed papers to former employees or contractors.
In 2003, New Times and Village Voice settled their dispute with the Justice Department. In a separate settlement with the local agencies, each agreed to pay $305,000 in penalties and $70,000 for legal costs.
This time, the Justice Department “will look at L.A. very closely,” said Yee Wah Chin, senior counsel at Mintz Levin Cohn Ferris Glovsky & Popeo in Washington. “The same issues arise. The question is whether they can make a case that the marketplace has changed and that alternative media has risen sufficiently so that just having one big alternative print media is not such a dreadful thing.”
The consent decree actually may help New Times and Village Voice in making that case.
For one thing, neither company is looking to open a competing newspaper in the Los Angeles or Cleveland areas because they closed their papers in both cities.
For another, as part of the consent decree, New Times agreed to sell off the assets of New Times L.A. to a competitor, Los Angeles-based Southland Publishing Inc., which picked up its computers and 600 vendor boxes for use at its own alternative weeklies: Los Angeles CityBeat, Los Angeles ValleyBeat, San Diego CityBeat, Pasadena Weekly and the Ventura County Reporter.
“There were two competing newspapers in Los Angeles when they decided to shutter one in Cleveland and Los Angeles, which reduced the competition and made it appear in Justice’s eyes more monopolistic,” said David Comden, group publisher of Southland Publishing. “This is different. Now comes this consolidation but no net change in the number of products in Los Angeles.”
The deal would not shut down any newspapers, leaving no assets to be divvied up to competitors. And the combined company would be unlikely to change the name of the LA Weekly to include “New Times” in the title, which is forbidden under non-competitive requirements of the consent decree.
In making their case to the Justice Department, the newspapers could argue that a combined company would reduce overall costs that would be passed down to consumers in the form of lower advertising rates.
“It’s a different standard to be applied here,” said Joe Sims, a partner in the Washington law office of Jones Day. “In the first situation, they weren’t merging,they were essentially allocating market share.”
Perhaps the biggest wild card is the effect the combination would have on national advertising for competitors. In Los Angeles, that would include CityBeat and its sister publications, as well as Easy Reader.
As part of the deal, Village Voice Media would switch its advertising affiliation from a cooperative network of alternative weeklies called the Alternative Weekly Network to the Ruxton Group Inc., an advertising network owned by New Times.
Village Voice makes up only six of 110 member newspapers that use Alternative Weekly Network, but its revenue accounts for a third of the group’s total revenue. Its papers are in the top 25 markets in the country.
Bronstad is a staff writer with the Los Angeles Business Journal.
