previous /
VOLUME 7
PAGES 1261 - 1498
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
WEDNESDAY, MAY 10, 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
ATTORNEY 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
1262
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 THOMAS S. HIXSON
ATTORNEYS AT LAW
17
18
19
20
21
22
23
24
25
1263
1 I N D E X
2
PAGE VOL.
3
OPENING STATEMENT BY MR. ROSCH 1386 7
4
5 PLAINTIFF'S WITNESSES PAGE VOL.
6 WEAVER, MICHAEL (RECALLED)
DIRECT EXAMINATION BY MR. SHULMAN 1268 7
7 CROSS-EXAMINATION BY MR. LINDSTROM 1282 7
CROSS-EXAMINATION BY MR. HOCKETT 1344 7
8 CROSS-EXAMINATION BY MR. HALLING 1351 7
REDIRECT EXAMINATION BY MR. SHULMAN 1354 7
9
10 DEFENDANTS' WITNESSES PAGE VOL.
11 FALK, STEVEN
DIRECT EXAMINATION BY MR. HALLING 1396 7
12 CROSS-EXAMINATION BY MR. BALABANIAN 1441 7
CROSS-EXAMINATION BY MR. ALIOTO 1446 7
13
14 E X H I B I T S
15
PLAINTIFF'S EXHIBITS W/DRAWN IDEN EVID VOL.
16
83 1465 7
17 166 1269 7
18 DEFENDANTS' EXHIBITS W/DRAWN IDEN EVID VOL.
19 1189 1418 7
1194 1422 7
20 1197 1426 7
983 1434 7
21 984 1431 7
986 1428 7
22 H-1190 1372 7
1408 7
23 1414 7
24
25
1264
1 WEDNESDAY - MAY 10, 2000 8:43 A.M.
2
3 THE COURT: VERY WELL. COUNSEL?
4 MR. HALLING: YOUR HONOR, IF IT PLEASE THE COURT, I
5 HAVE TWO PRELIMINARY MATTERS I WOULD LIKE TO TAKE UP. FIRST, I
6 JUST WOULD LIKE TO ALERT THE COURT THAT IF A RELATED CASE
7 NOTICE HAS NOT BEEN FILED, IT WILL BE SHORTLY WITH RESPECT TO A
8 COMPLAINT THAT WAS FILED MONDAY. IT'S ENTITLED SAN FRANCISCO
9 WEB PRESSMEN AND PREPRESS WORKERS UNION LOCAL 4 AGAINST SFNA,
10 HEARST AND CHRONICLE, AND THE COMPLAINT SAYS, COMPLAINT -- THE
11 TITLE IS "COMPLAINT TO COMPEL ARBITRATION AND FOR INJUNCTION TO
12 PRESERVE STATUS QUO PENDING ARBITRATION, C OO-1647. I JUST
13 WANTED TO ALERT YOU THAT THIS HAS BEEN FILED.
14 THE COURT: THANK YOU. HAS A RELATED CASE NOTICE
15 BEEN FILED OR IS IT YOUR INTENTION TO FILE ONE, OR --
16 MR. HALLING: ONE WILL BE FILED I EXPECT TODAY,
17 ALTHOUGH IT MAY EVEN HAVE BEEN FILED; BUT IF IT HASN'T BEEN, IT
18 WILL BE SHORTLY.
19 THE COURT: BY YOUR OFFICE OR BY THE PLAINTIFF IN
20 THIS NEW CASE?
21 MR. HALLING: I DON'T KNOW ABOUT THE PLAINTIFF, BUT
22 EITHER IT WILL BE FILED BY SFNA OR THE HEARST CORPORATION OR
23 BOTH.
24 THE COURT: ALL RIGHT.
25 MR. HALLING: THE SECOND --
1265
1 THE COURT: I HAVE NOT SEEN THE COMPLAINT AS YET. I
2 WAS ALERTED BY THE CLERK THAT SHE HAD HEARD THAT ONE WAS COMING
3 IN.
4 MR. HALLING: THE SECOND MATTER, YOUR HONOR, IS I
5 UNDERSTAND THAT MR. ROSCH WOULD LIKE TO ADDRESS THE QUESTION
6 THAT YOU POSED TO MR. CONNELL AT THE END OF THE DAY.
7 THE COURT: WELL, I'M ANXIOUS TO GET YOUR VIEWS ON
8 THIS, BUT I'M NOT SURE THIS IS THE TIME TO DO THAT.
9 MR. ROSCH: WHENEVER, YOUR HONOR. I JUST HAD A
10 CLARIFICATION.
11 THE COURT: CLARIFICATION OF THE QUESTION OR --
12 MR. ROSCH: CLARIFICATION OF THE RESPONSE.
13 ACTUALLY, OF THE COLLOQUY. IT WOULDN'T TAKE MORE THAN ABOUT A
14 MINUTE. BUT WHATEVER THE COURT'S PLEASURE IS.
15 THE COURT: LET'S CARRY ON. AS A MATTER OF FACT, I
16 HAVE ANOTHER QUESTION WHICH YOU CAN MULL OVER, ALL OF YOU,
17 SOMEWHAT ALONG THE SAME LINES, AND IT ARISES OUT OF SECTION
18 1804, WHICH IS PART OF THE NEWSPAPER PRESERVATION ACT. I'M NOT
19 SURE WHAT SECTION OF THE ACT IT WAS, BUT IT'S BEEN CODIFIED AT
20 TITLE 15 U.S.C. 1803, THAT -- I'M SORRY, 1804.
21 THAT PROVISION, TOGETHER, OF COURSE, WITH THE OTHER
22 PROVISIONS OF THE ACT, FAIRLY READ NEGATE THE SUPREME COURT'S
23 DECISION IN CITIZEN PUBLISHING. WHERE DOES THAT LEGISLATIVE
24 EXPRESSION LEAVE US? DOES THAT MEAN THAT CITIZEN PUBLISHING IS
25 OFF THE BOOKS AND WE START AFRESH WITH OUR ANALYSIS UNDER
1266
1 SECTION 7; OR IF THE COURT CONCLUDES THAT THE NEWSPAPER
2 PRESERVATION ACT HAS NO APPLICATION IN THIS ACTION, DOES
3 CITIZEN PUBLISHING KICK BACK IN AND EXPRESS THE LAW AS IT
4 EXISTS?
5 MR. ROSCH: AND THAT I THINK I CAN RESPOND TO YOU
6 RIGHT NOW.
7 THE COURT: ALL RIGHT. I REALLY DON'T WANT ARGUMENT
8 ON THIS, MR. ROSCH. I JUST WANT TO THROW THESE QUESTIONS OUT
9 AND HAVE YOU THINK ABOUT THEM.
10 MR. ROSCH: YES.
11 THE COURT: AND I DON'T WANT TO JUST HAVE
12 HIT-OR-MISS LEGAL ARGUMENTS.
13 MR. ROSCH: I UNDERSTAND THAT.
14 THE COURT: BUT THESE ARE THINGS THAT ARE ON MY MIND
15 AND I WANT YOU TO KNOW WHAT'S ON MY MIND AS WE GO THROUGH THIS
16 PROCESS, AND YOU CAN BE THINKING ABOUT HOW YOU RESPOND TO THESE
17 QUESTIONS AT AN APPROPRIATE TIME.
18 MR. ROSCH: IF YOUR HONOR WOULD LIKE ME TO DEFER, I
19 WILL.
20 THE COURT: THANK YOU.
21 MR. ROSCH: THANK YOU.
22 THE COURT: NOW, ARE WE READY WITH THE NEXT WITNESS,
23 MR. SHULMAN?
24 MR. SHULMAN: WITH THE WITNESS WHO WAS ON THE STAND.
25 I HAVE ONE PRELIMINARY MATTER, YOUR HONOR. YOUR
1267
1 HONOR ASKED YESTERDAY ABOUT THE AMICUS BRIEF OF THE DEPARTMENT
2 OF JUSTICE IN THE HONOLULU CASE. WE HAVE THAT FOR YOU. I
3 THINK YOU WILL FIND THAT IT BEARS DIRECTLY ON SOME OF THE
4 QUESTIONS YOU'VE BEEN ASKING.
5 THE COURT: VERY WELL. I LOOK FORWARD TO READING
6 IT.
7 ANY OTHER PRELIMINARY MATTERS?
8 (NO RESPONSE)
9 THE COURT: I HOPE YOU HAVE AN INTERESTING DAY IN
10 STORE FOR US, MR. SHULMAN.
11 MR. ALIOTO: IT'S GOING TO BE REAL EXCITING, JUDGE.
12 THE COURT: I TURNED DOWN AN OPPORTUNITY TO SEE MARK
13 MC GWIRE AT PAC BELL PARK JUST TO BE HERE WITH YOU.
14 (LAUGHTER)
15 THE COURT: SO --
16 MR. SHULMAN: THAT'S A TALL ORDER, YOUR HONOR.
17 THE COURT: ALL RIGHT. YOUR NEXT WITNESS?
18 MR. SHULMAN: IT'S MR. WEAVER, YOUR HONOR. WE'RE
19 CONTINUING WITH MR. WEAVER.
20 THE COURT: OH, YES, HE'S STILL ON THE STAND.
21 MICHAEL WEAVER,
22 CALLED AS A WITNESS FOR THE PLAINTIFF, HAVING BEEN PREVIOUSLY
23 DULY SWORN, TESTIFIED FURTHER AS FOLLOWS:
24 THE COURT: GOOD MORNING, MR. WEAVER.
25 THE WITNESS: GOOD MORNING.
1268
WEAVER - DIRECT / SHULMAN
1 THE COURT: DO YOU UNDERSTAND THAT THE OATH THAT YOU
2 TOOK YESTERDAY APPLIES TO THIS TESTIMONY?
3 THE WITNESS: YES, I DO.
4 THE COURT: SO YOU'RE STILL UNDER OATH. IS THAT
5 UNDERSTOOD?
6 THE WITNESS: THAT'S UNDERSTOOD.
7 THE COURT: VERY WELL. YOU MAY PROCEED,
8 MR. SHULMAN.
9 MR. SHULMAN: THANK YOU. MAY IT PLEASE THE COURT.
10 DIRECT EXAMINATION (RESUMED)
11 BY MR. SHULMAN:
12 Q. MR. WEAVER, YESTERDAY WHEN YOU WERE ON THE STAND I WAS
13 ASKING YOU ABOUT PLAINTIFF'S EXHIBIT 46, AND I WANT -- ONE OF
14 THE THINGS I HAD ASKED YOU ABOUT IN EXHIBIT 46 WAS THE VERY
15 LAST PAGE, WHICH WAS THE PROJECTED PROFIT AND LOSS STATEMENT
16 THAT YOU DID ON FEBRUARY 10. DO YOU HAVE THAT IN FRONT OF YOU?
17 A. YES, I DO.
18 Q. OKAY. NOW, YOU SHOULD ALSO HAVE ON THE WITNESS STAND IN
19 FRONT OF YOU PLAINTIFF EXHIBIT 166, WHICH IS NOT YET IN
20 EVIDENCE. DO YOU HAVE THAT?
21 A. YES, I DO.
22 Q. OKAY. NOW, IS THIS -- CAN YOU TELL US WHAT THIS IS
23 WITHOUT --
24 MR. SHULMAN: DOES YOUR HONOR HAVE THAT ONE, 166?
25 THE COURT: I DON'T HAVE IT IN MY HAND, BUT --
1269
WEAVER - DIRECT / SHULMAN
1 MR. LINDSTROM: YOUR HONOR, FOR THE RECORD, IT'S THE
2 SAME AS HEARST 1036, WHICH IS ALREADY IN EVIDENCE.
3 MR. SHULMAN: OH, IT IS. ALL RIGHT.
4 THE COURT: PLAINTIFF'S 166?
5 MR. SHULMAN: IT'S HEARST 1036 HE SAYS.
6 THE COURT: I'VE GOT YOUR BOOK HERE.
7 MR. SHULMAN: OH, IT'S PLAINTIFF 166, RIGHT.
8 THE COURT: OKAY. AND THEY'RE IDENTICAL; ARE THEY,
9 MR. --
10 MR. LINDSTROM: YES, YOUR HONOR.
11 MR. SHULMAN: SO WE CAN OFFER 166?
12 MR. LINDSTROM: AND YOU'LL BE MET WITH NO OBJECTION.
13 MR. SHULMAN: OKAY. WE OFFER 166.
14 THE COURT: ALL RIGHT.
15 (PLAINTIFF'S EXHIBIT 166
16 RECEIVED IN EVIDENCE)
17 THE COURT: GO AHEAD, MR. SHULMAN.
18 MR. SHULMAN: LET ME PUT UP -- AM I GOING....
19 (PAUSE IN PROCEEDINGS.)
20 BY MR. SHULMAN:
21 Q. ALL RIGHT. PLAINTIFF EXHIBIT 166 IS SIMILAR TO -- THE
22 NUMBERS ON IT ARE THE SAME -- ARE THE NUMBERS ON 166 THE SAME
23 AS THE NUMBERS ON EXHIBIT -- ON THE LAST PAGE OF EXHIBIT 46?
24 A. YES. THE PAGES ARE MARKED R00036 IS THE SAME AS R000237.
25 Q. OKAY. BUT THE DATE ON EXHIBIT 166 IS APRIL 6, WHICH IS A
1270
WEAVER - DIRECT / SHULMAN
1 LATER DATE THAN THE FEBRUARY 10 DATE OF THE EARLIER SCHEDULE;
2 CORRECT?
3 A. THAT'S CORRECT. THAT REPRESENTS THE DATE IN WHICH IT WAS
4 PRINTED.
5 Q. OKAY. SO CAN YOU EXPLAIN THE RELATIONSHIP BETWEEN 166 AND
6 46?
7 A. YES. THIS IS THE SAME ITERATION OF THE PROFIT AND LOSS
8 MODEL. IT'S THE SAME NUMBERS, HAS THE SAME CURRENT EXPENSE
9 STREAM AND THE SAME THREE-YEAR -- TWO-, THREE-YEAR SCENARIOS.
10 Q. BUT IT'S JUST PRINTED AT A LATER DATE?
11 A. THAT'S CORRECT.
12 Q. NOW, ATTACHED TO EXHIBIT 166 THERE ARE A NUMBER OF
13 SCHEDULES. CAN YOU EXPLAIN GENERALLY WHAT THEY ARE?
14 A. YES. THE SCHEDULE MARKED PAGE 238, WE TALKED A LITTLE BIT
15 ABOUT THIS YESTERDAY, THIS IS A SCHEDULE OF EMPLOYEES, AND HERE
16 THE MAJOR -- THERE ARE TWO DIFFERENCES. ONE IS THE EARNINGS,
17 AS YOU CAN SEE, ARE NOT ROUNDED TO ZERO. THAT'S THE CENTER
18 COLUMN. THOSE ARE ACTUALLY THE BEST NUMBERS I COULD GET FROM
19 THE VERONIS AND SUHLER OFFERING MEMORANDUM AS TO THE ACTUAL
20 SALARY LEVELS, AVERAGE SALARY LEVELS IN THESE GROUPS.
21 ALSO, AS YOU'LL SEE LATER, THAT THE ACTUAL STAFFING
22 IS DIFFERENT BECAUSE ON THE NEXT PAGE, WHICH IS 239, YOU SEE
23 THE ASSUMPTIONS THAT UNDERLIE THIS MODEL. AND IN THIS CASE, AS
24 YOU SEE ON PAGE 239, THIS IS AN ATTEMPT TO LOOK AT OPERATING AN
25 EXAMINER WITH A PRESS RUN SIMILAR TO WHAT WE HAVE TODAY.
1271
WEAVER - DIRECT / SHULMAN
1 YOU SEE 125,000 DAILY NEAR THE MIDDLE AND 150,000 ON
2 SUNDAY. THIS, OF COURSE, IMPACTS THE CALCULATIONS FOR
3 NEWSPRINT AND THE COST OF SUPPLEMENTS, AS WELL AS LOOKING AT
4 THIS MODEL WE'RE GOING TO HAVE HIGHER STAFFING ON PAGE 238
5 BECAUSE WE'RE LOOKING AT A PAPER THAT LOOKS QUITE -- VERY, VERY
6 SIMILAR TO TODAY'S EXAMINER.
7 Q. OKAY. IF YOU SEE AT THE TOP YOU HAVE -- THESE ARE THE
8 ASSUMPTIONS FOR THE PAGES?
9 A. YES. THIS IS ALSO AN ATTEMPT TO LOOK AT THE NUMBER OF
10 PAGES AND ADVERTISING RATES, REVENUE FRINGE OR COST FRINGE.
11 AND IN THIS CASE THE NUMBER OF PAGES IS SIGNIFICANTLY LARGER
12 THAN IN THE OTHER MODEL THAT WE WERE LOOKING AT.
13 Q. SO THIS ASSUMES A PAPER WITH 56 PAGES DAILY AND A HUNDRED
14 ON SUNDAY?
15 A. THAT'S CORRECT.
16 Q. AND THEN OF THOSE 56, 22.4 ARE FOR ADVERTISING?
17 A. THAT'S CORRECT.
18 Q. AND THE PRESS RUN OF THIS PAPER IS 125,000 DAILY AND
19 150,000 ON SUNDAY?
20 A. THAT'S CORRECT.
21 Q. OKAY. NOW I WANT TO DIRECT YOUR ATTENTION TO THE -- AND
22 SO THEN THIS IS THE BACKUP FOR THE MODEL THAT'S ON THE LAST
23 PAGE OF EXHIBIT 46 OR THE FIRST PAGE OF EXHIBIT 166?
24 A. THAT IS CORRECT.
25 Q. ALL RIGHT. NOW I WANT TO DIRECT YOUR ATTENTION BACK TO
1272
WEAVER - DIRECT / SHULMAN
1 EXHIBIT 46 AND SPECIFICALLY THE SECOND PAGE. THIS IS A MODEL
2 THAT YOU DID -- IS THIS ANOTHER MODEL YOU DID?
3 A. YES. THIS MODEL IS A -- WAS BASED UPON A COPY OF THE
4 EARLY ONE. YOU CAN SEE ON TOP IT SAYS "SAN FRANCISCO
5 EXAMINER - 1." SO I COPIED THE EARLIER MODEL AND PUT IN NEW
6 ASSUMPTIONS.
7 Q. OKAY. AND YOU DID THIS MODEL -- YOU PRINTED THIS MODEL ON
8 WHAT DATE?
9 A. ON MARCH 23RD.
10 Q. ALL RIGHT. AND THIS IS -- WAS THIS DONE AFTER THE EARLIER
11 MODEL?
12 A. YES. THIS WAS DONE MUCH LATER. THIS WAS DONE IN
13 PREPARATION FOR THE MEETING WE'VE TALKED ABOUT OR THAT'S BEEN
14 TALKED ABOUT IN COURT ON MARCH 25TH.
15 Q. SO THIS WAS AN -- ALL RIGHT.
16 LET'S LOOK AT PAGE 300 -- FOUR ZEROS 33, WHICH IS
17 ENTITLED "REVENUE AND EXPENSE DETAILS." CAN YOU EXPLAIN WHAT
18 THIS IS?
19 A. THIS IS AN ITERATION OF THIS MODEL THAT SHOWS A NEWSPAPER
20 THAT IS SIGNIFICANTLY SMALLER IN TERMS OF PAGES, 44 PAGES
21 DAILY, 64 SUNDAY. THAT RESULTS IN AN ASSUMPTION OF FEWER AD
22 PAGES.
23 BECAUSE OF THE PRESS RUN AND THE PAID CIRCULATION
24 ASSUMPTIONS ARE LOWER, THE RATE PER INCH IS NOW $25 VERSUS I
25 THINK WE'VE SEEN 36 AND 40 ON THE OTHER SCHEDULE.
1273
WEAVER - DIRECT / SHULMAN
1 Q. SO THE SECOND MODEL YOU DID ASSUMES A SMALLER PAPER?
2 A. THAT'S CORRECT.
3 Q. WITH 44 PAGES DAILY AND 64 ON SUNDAY?
4 A. THAT'S CORRECT.
5 Q. AND YOU MADE AN ASSUMPTION AS TO THE VARIOUS -- AS TO THE
6 NUMBER OF PAGES THAT WOULD BE USED FOR ADVERTISING IN EACH
7 PAPER?
8 A. YES.
9 Q. THAT'S 17.6 DAILY, 32 SUNDAY?
10 A. YES.
11 Q. ALL RIGHT. AND THE PRESS RUN THAT YOU SHOW, IT'S A LITTLE
12 LOWER ON THE PAGE, FOR THE PAPERS, THAT IS 80,000 FOR THE
13 DAILY, 80,000 FOR THE SUNDAY?
14 A. THAT'S CORRECT.
15 Q. ALL RIGHT. AND THEN USING THESE DID YOU MAKE -- DID YOU
16 MAKE ANY ASSUMPTIONS ABOUT WHETHER YOU WOULD IN FACT BE ABLE TO
17 ACHIEVE THE REVENUE -- THE ADVERTISING REVENUE THAT'S SHOWN AT
18 THE TOP OF THE PAGE, THE $23 MILLION?
19 A. NO, I DID NOT. THIS WAS NOT AN ATTEMPT FOR ME TO SUGGEST
20 THAT THE REVENUE NUMBER OF 23 MILLION 076 IS MY ESTIMATE OF THE
21 REVENUE, IT IS SIMPLY A CALCULATION GIVEN THE ASSUMPTIONS OF
22 THE TOTAL PAGES, THE NUMBER OF ADVERTISING PAGES AND THE RATE
23 PER INCH.
24 Q. OKAY. AND IF WE GO BACK TO THE SECOND PAGE, WE SEE,
25 ACCORDING TO THIS MODEL, WHAT YOU ANTICIPATE THE PERFORMANCE OF
1274
WEAVER - DIRECT / SHULMAN
1 SUCH A PAPER TO BE IN THE THIRD YEAR?
2 A. (WITNESS EXAMINES DOCUMENT.) IT'S NOT WHAT I ANTICIPATE
3 IT TO BE. IT'S SIMPLY WHAT THE MODEL COMES UP WITH GIVEN THAT
4 REVENUE ASSUMPTION.
5 Q. AND THIS SIZE PAPER WITH THIS STAFFING?
6 A. YES.
7 Q. OKAY. AND UNDER THIS MODEL OF THIS NEWSPAPER YOU SHOW
8 OPTIMISTIC IN THE THIRD YEAR A LOSS OF ABOUT $11 MILLION?
9 A. THAT'S CORRECT.
10 Q. AND THE REALISTIC LOSS FOR THE THIRD YEAR IS IN THE AREA
11 OF $20 MILLION; IS THAT RIGHT?
12 A. YES, 19 MILLION 152.
13 Q. NOW I WANT TO GO BACK TO YOUR AFFIDAVIT, EXHIBIT 60, THE
14 SECOND PAGE OF THE AFFIDAVIT. IN PARAGRAPHS 2 AND 3 YOU RECITE
15 VARIOUS INFORMATION THAT WAS AVAILABLE TO YOU AT THE MEETING OR
16 BEFORE THE MEETING ON THE 25TH?
17 A. THAT'S CORRECT.
18 Q. ALL RIGHT. NOW LET'S LOOK AT PARAGRAPH 4. YOU SAY:
19 "BASED UPON THOSE FACTS AND MY EXPERIENCE IN
20 THE INDUSTRY, THE PRESENT SUBSIDY BY HEARST WILL
21 NOT UNDER ANY CIRCUMSTANCES BE ABLE TO SUPPORT
22 THE PROBABILITY OR EVEN THE POSSIBILITY OF A
23 VIABLE PAPER WHICH WOULD BE COMPETITIVE TO THE
24 CHRONICLE."
25 IS THAT YOUR OPINION?
1275
WEAVER - DIRECT / SHULMAN
1 A. YES.
2 Q. AND HAVE YOU STATED THE BASIS FOR THAT OPINION IN YOUR
3 TESTIMONY IN THIS TRIAL?
4 A. NOT YET.
5 Q. OKAY. TELL US WHAT THE BASIS FOR YOUR OPINION IS.
6 A. IN MY OPINION, THE COSTS SHOWN ON THE MODEL THAT WE TALKED
7 ABOUT, WHICH ARE IN THE 43 TO -- 42 TO 43 MILLION-DOLLAR RANGE
8 IN ONE SCENARIO AND THE MID-50 MILLION-DOLLAR RANGE IN ANOTHER,
9 UNDERSTATES THE ACTUAL COSTS BECAUSE I'M ASSUMING IN THIS MODEL
10 THAT WE'RE IN AN EQUILIBRIUM STATE RATHER THAN BUILDING
11 CIRCULATION. AND I THINK THE COSTS TO BUILD CIRCULATION AND
12 EVEN TO GET IT TO THIS LEVEL WOULD BE SIGNIFICANTLY MORE THAN
13 THE AMOUNT SHOWN UNDER CIRCULATION OTHER ON THESE TWO MODELS.
14 THEREFORE, MY FEELING IS THAT THE COSTS WILL BE A
15 MINIMUM OF $50 MILLION, POSSIBLY $60 MILLION, AND THE REVENUE
16 OFFSETS IN MY OPINION WOULD BE RELATIVELY LOW.
17 Q. OKAY. YOU SAY, QUOTE:
18 "IN ORDER TO PRODUCE A VIABLE COMPETITIVE
19 PAPER, ANY BUYER OF THE EXAMINER WOULD NEED A
20 SUBSIDY OF UP TO $50 MILLION FOR THREE YEARS."
21 I'M GOING TO STOP THERE. IS THAT YOUR OPINION?
22 A. YES.
23 Q. NOW, DO YOU MEAN $50 MILLION A YEAR FOR EACH YEAR OR DO
24 YOU MEAN A TOTAL OF 50 MILLION?
25 A. $50 MILLION PER YEAR FOR UP TO THREE YEARS.
1276
WEAVER - DIRECT / SHULMAN
1 Q. OKAY. NOW, YOU UNDERSTAND THAT'S DIFFERENT FROM THE
2 OPINION THAT OTHERS AT THE MEETING REACHED?
3 A. I UNDERSTAND THAT.
4 Q. OKAY. EXPLAIN, PLEASE, THE BASIS FOR YOUR OPINION.
5 A. IN MY OPINION A REASONABLE SUBSIDY FOR THREE YEARS WOULD
6 GET THE EXAMINER INTO A SITUATION WHERE WE COULD MAKE A
7 DECISION OR THE OWNER COULD MAKE A DECISION ABOUT WHETHER THE
8 EXAMINER ITSELF WILL BE VIABLE IN THE LONG-TERM, AND IT SEEMS
9 TO ME TO BE A REASONABLE POINT AT WHICH TO STEP BACK AND SAY,
10 "WE PUT A SIGNIFICANT AMOUNT OF MONEY INTO THIS. WE'VE
11 INVESTED INTO THE PAPER. WHAT ARE OUR CHANCES AT THAT TIME?"
12 Q. OKAY. YOU SAY:
13 "ACCORDING TO THE EVIDENCE THAT I HAVE SEEN
14 AND MY EXPERIENCE IN THE INDUSTRY, IT WILL COST
15 AT LEAST $50 MILLION A YEAR IN ORDER TO BE ABLE
16 TO PUBLISH AN ECONOMICALLY VIABLE AND
17 COMPETITIVE EXAMINER."
18 IS THAT YOUR OPINION?
19 A. YES.
20 Q. HAVE YOU TOLD US THE GROUNDS FOR THAT OPINION?
21 A. YES.
22 Q. AND YOU SAY, QUOTE:
23 "I AM INFORMED THAT HEARST CURRENTLY PAYS
24 APPROXIMATELY $90 MILLION A YEAR TO SUPPORT THE
25 EXISTING PAPER," END OF QUOTE.
1277
WEAVER - DIRECT / SHULMAN
1 WHAT IS THE SOURCE OF THAT INFORMATION?
2 A. THAT INFORMATION COMES FROM THE $80 MILLION WE'VE TALKED
3 ABOUT IN THE OTHER DEPOSITIONS AND THE $10 MILLION ADDITIONAL
4 FOR THE SUNDAY PRODUCT.
5 Q. THEN YOU SAY, QUOTE:
6 "FURTHER, UNDER THE TERMS OF THE DEAL
7 BETWEEN HEARST AND PAN ASIA, THE FOUR-MONTH
8 TRANSITION IS TOO SHORT A TIMEFRAME FOR PAN ASIA
9 TO BE IN A POSITION TO PRODUCE A STAND-ALONE,
10 VIABLE, PAID CIRCULATION DAILY PAPER WHICH WOULD
11 BE COMPETITIVE TO THE CHRONICLE. AT A
12 MINIMUM" -- I'M GOING TO STOP THERE.
13 IS THAT YOUR OPINION?
14 A. YES, IT IS.
15 Q. AND WHAT IS THE BASIS FOR THAT OPINION THAT THE FOUR-MONTH
16 TRANSITION TIME PERIOD IS TOO SHORT A TIMEFRAME FOR PAN ASIA TO
17 BE IN A POSITION TO PRODUCE A STAND-ALONE, VIABLE, PAID
18 CIRCULATION DAILY NEWSPAPER THAT WOULD BE COMPETITIVE TO THE
19 CHRONICLE?
20 A. IN MY OPINION A STAND-ALONE, VIABLE, COMPETITIVE NEWSPAPER
21 WOULD BE, IN THE TERMS OF DR. COMANOR, A SUBSTITUTE FOR THE
22 CHRONICLE; IN OTHER WORDS, A PAPER THAT YOU WOULD READ INSTEAD
23 OF RATHER THAN ALONG WITH THE CHRONICLE. AND AS A SUBSTITUTE
24 NEWSPAPER, A COMPETITIVE NEWSPAPER, IT WOULD HAVE TO CARRY MOST
25 OF THE ADVERTISING, PARTICULARLY FROM THE LARGE ADVERTISERS,
1278
WEAVER - DIRECT / SHULMAN
1 AND IT WOULD HAVE TO HAVE NEWS CONTENT THAT WAS A SUBSTITUTE,
2 IF YOU WILL, COMPETITIVE WITH THE CHRONICLE.
3 IN MY OPINION IT WOULD TAKE MORE THAN FOUR MONTHS TO
4 TRANSITION THE ADVERTISING; AND WITHOUT THE NEWS-GATHERING
5 FORCE CURRENTLY EXISTENT AT THE EXAMINER, I THINK IT WOULD BE
6 DIFFICULT TO DUPLICATE THAT QUALITY OF NEWS COVERAGE AND HAVE
7 THAT UP AND GOING IN FOUR MONTHS.
8 Q. THEN YOU SAY:
9 "AT A MINIMUM ANY BUYER OF THE EXAMINER
10 WOULD REQUIRE AT LEAST A 12- TO 18-MONTH
11 TRANSITION PERIOD BEFORE IT COULD PRODUCE AN
12 ECONOMICALLY VIABLE PAPER."
13 IS THAT YOUR OPINION?
14 A. YES.
15 Q. WHAT IS THE BASIS FOR THAT OPINION?
16 A. THAT'S BASED UPON THE DISCUSSIONS AND THE WORK THAT WERE
17 DONE WITH MR. FLAHERTY AND MR. INGRAM IN WHICH WE LOOKED AT HOW
18 LONG A TRANSITION PERIOD MIGHT BE. EARLIER IN THE TRIAL WAS
19 TALKED ABOUT 22 MONTHS. IF YOU LOOK CLOSELY AT THAT, I THINK
20 YOU WOULD SEE THE FIRST FOUR TO SIX MONTHS WERE NEGOTIATIONS
21 AND FOLLOWUP.
22 AND ALSO ON THE OPINION OF MR. INGRAM THAT TO
23 PRODUCE A PAPER, YOU WOULD HAVE TO PUT IN -- INTO PLACE A PRESS
24 ROOM CAPABLE OF PRODUCING THAT PAPER, AND THAT IN ITSELF WOULD
25 TAKE THE 12 TO 18 MONTHS.
1279
WEAVER - DIRECT / SHULMAN
1 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
2 QUESTIONS.
3 THE COURT: BEFORE YOU MOVE ON, MR. SHULMAN --
4 MR. SHULMAN: SURE.
5 THE COURT: -- LET ME ASK THE WITNESS TO GO BACK TO
6 A STATEMENT ON PAGE 2, I BELIEVE IT IS, OF HIS DECLARATION,
7 PARAGRAPH 4, BEGINNING ABOUT LINE 23, IN WHICH YOU EXPRESS THE
8 OPINION THAT HEARST NOW PAYS APPROXIMATELY $90 MILLION PER YEAR
9 TO SUPPORT THE EXISTING PAPER.
10 LET ME ASK YOU TO EXPAND ON THAT. TELL ME HOW YOU
11 ARRIVED AT THAT NUMBER.
12 THE WITNESS: I WOULD CALL YOUR ATTENTION BACK TO
13 EXHIBIT EITHER 46 OR 166 WHERE I HAVE ATTEMPTED TO LAY OUT THE
14 CURRENT EXPENSE STREAM AS I UNDERSTOOD IT BASED UPON
15 INFORMATION IN THE OFFERING MEMORANDUM.
16 THE COURT: ALL RIGHT. I HAVE 46.
17 THE WITNESS: 166 IS --
18 THE COURT: I'VE GOT 166 AS WELL OR THE EQUIVALENT,
19 THE HEARST EQUIVALENT.
20 MR. SHULMAN: THE FIRST PAGE, YOUR HONOR.
21 THE WITNESS: IF YOU LOOK AT THAT, WHICH IS MARKED
22 PAGE 000237, YOU SEE A TOTAL EXPENSE STREAM THERE OF
23 $80 MILLION BASED UPON THE INFORMATION THAT I WAS ABLE TO
24 GATHER FROM THE OFFERING MEMORANDUM.
25 THE COURT: LET'S SEE, WHAT'S THE BATES STAMP NUMBER
1280
WEAVER - DIRECT / SHULMAN
1 YOU'RE READING FROM?
2 THE WITNESS: 000237.
3 THE COURT: YES.
4 THE WITNESS: LOWER RIGHT-HAND CORNER.
5 THE COURT: OH, I SEE, CURRENT REVENUE STREAM.
6 THAT'S THE COLUMN YOU'RE READING FROM.
7 MR. SHULMAN: CURRENT EXPENSE STREAM.
8 THE WITNESS: CURRENT EXPENSE STREAM.
9 THE COURT: CURRENT EXPENSE STREAM, THANK YOU.
10 THE WITNESS: SO THE SOURCE OF THESE NUMBERS IS THE
11 OFFERING MEMORANDUM.
12 THE COURT: RIGHT, I UNDERSTOOD THAT.
13 THE WITNESS: AND THEN THERE'S BEEN A LOT OF
14 DISCUSSION ABOUT THE SUNDAY PAPER AND HOW MUCH OF THAT IS OR
15 ISN'T IN THIS $80 MILLION.
16 I BELIEVE IN EARLIER --
17 MR. SHULMAN: 46, FIRST PAGE.
18 THE WITNESS: 46, FIRST PAGE --
19 THE COURT: WELL, WHAT I'M DRIVING AT IS YOUR
20 CHARACTERIZATION OR STATEMENT THAT THESE NUMBERS INVOLVE A
21 PAYMENT BY HEARST OF $90 MILLION. YOU'RE NOT SAYING, ARE YOU,
22 THAT HEARST INCURS A LOSS OF $90 MILLION A YEAR ON THE PAPER,
23 AN OUT-OF-POCKET LOSS OF THAT MAGNITUDE; ARE YOU?
24 THE WITNESS: YOU'RE CORRECT.
25 THE COURT: ALL RIGHT. NOW, WHAT IS IT YOU'RE
1281
WEAVER - CROSS / LINDSTROM
1 SAYING BY THAT STATEMENT, THAT HEARST CURRENTLY PAYS
2 $90 MILLION A YEAR TO SUPPORT THE EXISTING PAPER?
3 THE WITNESS: I THINK IT WOULD BE MORE CORRECT TO
4 SAY THAT THE SAN FRANCISCO NEWSPAPER AGENCY AND HEARST SPENDS
5 APPROXIMATELY $90 MILLION A YEAR TO SUPPORT THE EXISTING PAPER.
6 THE COURT: AND THAT PAPER GENERATES REVENUES OF
7 WHAT?
8 THE WITNESS: I HAVEN'T -- I HAVE NOT IN THIS
9 SITUATION MADE ANY ESTIMATES OF THE REVENUE NUMBERS.
10 THE COURT: ALL RIGHT. SO YOUR STATEMENT, THEN,
11 REFERS ONLY TO THE AMOUNT OF MONEY THAT HEARST HAS TO INCUR AS
12 EXPENSES TO SUPPORT THE PAPER TOGETHER, OF COURSE, WITH ITS
13 SHARE OF WHAT EXPENSES ARE INCURRED BY THE NEWSPAPER AGENCY?
14 THE WITNESS: THIS STATEMENT IS -- MY STATEMENT IS
15 THAT THE EXPENSES INCURRED BY THE NEWSPAPER AGENCY AND HEARST
16 ONLY, IRREGARDLESS OF REVENUES, IS APPROXIMATELY $90 MILLION.
17 THE COURT: ALL RIGHT. OKAY. THANK YOU,
18 MR. SHULMAN.
19 MR. SHULMAN: THANK YOU.
20 THE COURT: MR. LINDSTROM.
21 MR. LINDSTROM: THANK YOU, YOUR HONOR. YOUR HONOR,
22 IF IT PLEASE THE COURT, MAY I APPROACH THE WITNESS?
23 THE COURT: YES, YOU MAY.
24
25
1282
WEAVER - CROSS / LINDSTROM
1 CROSS-EXAMINATION
2 BY MR. LINDSTROM:
3 Q. GOOD MORNING, MR. WEAVER.
4 A. GOOD MORNING, MR. LINDSTROM.
5 Q. I HAVE -- WE'VE MET BEFORE; HAVEN'T WE?
6 A. WE HAVE.
7 MR. LINDSTROM: I HAVE, YOUR HONOR, FOR THE WITNESS,
8 IN ORDER TO EXPEDITE HIS EXAMINATION, A COLLECTION OF EXHIBITS
9 THAT I MIGHT REFER TO DURING THE COURSE OF THE EXAMINATION
10 WHICH I'D LIKE TO PLACE BEFORE HIM. THEY'RE ALL IN EVIDENCE.
11 AND I HAVE A COPY FOR THE COURT. IF YOUR HONOR WISHES TO HAVE
12 THE SAME DOCUMENT, I'LL TENDER IT TO YOUR CLERK AT THIS TIME.
13 THE COURT: ALL RIGHT.
14 MR. LINDSTROM: AND I WISH TO ADVISE THE COURT, I
15 HAVE NO INTENTION OF GOING THROUGH ALL THESE DOCUMENTS, BUT
16 THIS WITNESS HAS PRODUCED A NUMBER OF THINGS AND THEY MAY COME
17 INTO PLAY DURING THE COURSE OF THE EXAMINATION.
18 THE COURT: ALL RIGHT.
19 BY MR. LINDSTROM:
20 Q. LET ME ASK JUST A COUPLE OF FOLLOWUP QUESTIONS WITH
21 RESPECT TO YOUR CALCULATION OF THE COSTS RELATING TO PRODUCING
22 TODAY'S EXAMINER.
23 DIRECTING YOUR ATTENTION TO PLAINTIFF'S 46, ON THE
24 FIRST PAGE, AS MR. SHULMAN JUST INDICATED, THE FIRST PAGE OF
25 THIS EXHIBIT, BATES STAMPED PAGE R00030, IS YOUR CALCULATION OF
1283
WEAVER - CROSS / LINDSTROM
1 THE COSTS ASSOCIATED WITH PRODUCING A SUNDAY NUMBER, A SUNDAY
2 PAPER; CORRECT?
3 A. THAT WAS A CALCULATION THAT WAS BASICALLY PREPARED BY
4 LARRY INGRAM.
5 Q. WITH WHICH YOU AGREE; CORRECT?
6 A. YES.
7 Q. AND IF ONE ADDS THAT $10 MILLION TO THE $80 MILLION ON
8 PAGE 00036, YOU GET THE $90 MILLION THAT'S REFERENCED IN YOUR
9 DECLARATION; CORRECT?
10 A. THAT'S CORRECT.
11 Q. NOW, LET ME ASK YOU A QUESTION ABOUT BATES STAMPED PAGE
12 R00031. HERE YOU COME UP WITH A COST ESTIMATE FOR THE
13 EXAMINER, NOT INCLUDING THE SUNDAY PAPER, OF 73 RATHER THAN
14 $80 MILLION. I THINK I UNDERSTAND YOUR TESTIMONY ON THIS
15 POINT, BUT COULD YOU EXPLAIN TO THE COURT WHY IT IS THAT THIS
16 NUMBER IS DIFFERENT THAN THE 80 MILLION WE SAW A FEW MOMENTS
17 AGO?
18 A. (WITNESS EXAMINES DOCUMENTS.) I WOULD START WITH THE TOP
19 LINE ON THE RIGHT, NEWSPRINT AND INK. ON THIS PAGE THE
20 4 MILLION 635 SIMPLY PICKS UP THE NEWSPRINT AND INK NUMBER
21 THAT'S UNDER THE OPTIMISTIC SCENARIO, SO THAT IT UNDERSTATES
22 THE COST OF NEWSPRINT AND INK. THE NUMBER 8 MILLION 498 IS A
23 BETTER NUMBER FOR THAT.
24 THE SAME --
25 Q. LET ME STOP YOU FOR A MOMENT. WHY DID YOU MODEL THIS
1284
WEAVER - CROSS / LINDSTROM
1 SCENARIO THAT'S DIFFERENT THAN THE FIRST THAT YOU RAN?
2 A. I MODELED THE SECOND SCENARIO TO LOOK AT NOT THE CURRENT
3 EXPENSE STREAM, WHICH I DID NOT OBVIOUSLY GO BACK AND VERIFY
4 FROM ONE TO THE OTHER, BUT TO LOOK AT WHAT DIFFERENT
5 ASSUMPTIONS WOULD BE ON THE PROFIT AND LOSS OR THE EXPENSE AND
6 REVENUE STREAMS FROM ONE MODEL TO ANOTHER.
7 Q. WOULD IT BE FAIR TO SAY WITH RESPECT TO THIS MODEL, YOUR
8 GOAL WAS TO MODEL FOR MR. REILLY A SCALED-BACK OPERATION THAT
9 WOULD ENTAIL A TOTAL COST TO HIM OF PUTTING THE PAPER OUT OF
10 SOMETHING ON THE ORDER OF $40 MILLION AND TO COMPARE THAT ON AN
11 APPLES-AND-APPLES BASIS WITH WHAT THE CURRENT COST OF PRODUCING
12 THE EXAMINER WOULD BE MADE ON THE SAME SET OF ASSUMPTIONS?
13 A. YOU'RE CORRECT THAT THIS MODEL ON PAGE 31 WAS PUT TOGETHER
14 TO REFLECT WHAT COULD BE DONE IF YOU WERE TO SPEND 40 TO
15 $50 MILLION TO PRODUCE THE EXAMINER.
16 THE SECOND HALF OF THE STATEMENT I THINK I WOULD
17 STILL SAY THAT THE EXPENSE STREAM OF $80 MILLION IS MORE
18 ACCURATE.
19 Q. CORRECT. AND AUGMENTED BY THE 10 MILLION FOR SUNDAY,
20 $90 MILLION IS THE FIGURE THAT HIS HONOR SHOULD TAKE FROM YOUR
21 TESTIMONY IS THE COST OF PRODUCING TODAY'S EXAMINER; ISN'T THAT
22 RIGHT? 90 MILLION.
23 A. I HAVE -- I HAVE PUT TOGETHER THE FIRST 80 MILLION FROM
24 INFORMATION PROVIDED TO ME IN THE OFFERING MEMORANDUM, AND I
25 BELIEVE THAT THE OFFERING MEMORANDUM HAS, AS THEY ALL DO, LOTS
1285
WEAVER - CROSS / LINDSTROM
1 OF CAVEATS IN THEM. SO I CAN'T STAND BY THOSE NUMBERS
2 INDEPENDENTLY OF THE OFFERING MEMORANDUM. I CAN ONLY OFFER
3 THEM UP -- EXCUSE THE PUN -- AS WHAT IS PRESENTED BY VERONIS
4 SUHLER AND HEARST CORPORATION AS THE COSTS ASSOCIATED WITH
5 PRODUCING THE EXAMINER.
6 Q. WELL, THESE WERE THE NUMBERS YOU OFFERED UP TO YOUR
7 CLIENT, MR. REILLY; RIGHT?
8 A. THAT'S CORRECT.
9 Q. THE 80 MILLION; CORRECT?
10 A. THAT'S CORRECT.
11 Q. AND THE 10 MILLION FOR A SUNDAY EDITION; RIGHT?
12 A. THAT'S CORRECT.
13 Q. AND YOU PROVIDED HIM WITH THOSE ESTIMATES AT A POINT IN
14 TIME BEFORE YOU WERE RETAINED TO TESTIFY IN THIS LITIGATION;
15 RIGHT?
16 A. THAT'S CORRECT.
17 Q. YOUR GOAL IN PROVIDING HIM WITH THAT INFORMATION WAS TO
18 GIVE HIM THE BEST DATA YOU COULD COME UP WITH TO ENABLE HIM TO
19 NEGOTIATE WITH HEARST; ISN'T THAT RIGHT?
20 A. THAT'S CORRECT.
21 Q. NOW, YOU LOOKED AT THE VERONIS AND SUHLER OFFERING
22 MEMORANDUM; CORRECT?
23 A. THAT'S CORRECT.
24 Q. YOU TOLD US DURING DIRECT THAT YOU ALSO LOOKED AT A ROOM
25 FULL OF DOCUMENTS AT THE SHEPPARD, MULLIN LAW FIRM; RIGHT?
1286
WEAVER - CROSS / LINDSTROM
1 A. THAT'S CORRECT.
2 Q. AND WHAT KINDS OF DOCUMENTS DID YOU LOOK AT THERE?
3 A. THE SHEPPARD, MULLIN LAW FIRM DOCUMENTS INCLUDED
4 INFORMATION ABOUT THE PROFIT AND LOSS OF THE SAN FRANCISCO
5 NEWSPAPER AGENCY. THERE WAS A LOT OF INFORMATION ABOUT
6 ADVERTISING, ADVERTISERS, ADVERTISER CONTRACTS, AND THERE WAS
7 INFORMATION ABOUT CIRCULATION. THERE WERE SOME OTHER THINGS I
8 DON'T THINK WE TOOK ANY -- I DIDN'T TAKE AWAY ANY INFORMATION
9 OTHER THAN THAT.
10 Q. THE DOCUMENTS RELATING TO THE COSTS AND EXPENSES THAT YOU
11 SAW AT SHEPPARD, MULLIN, WERE THOSE THE TYPES OF DOCUMENTS THAT
12 YOU WOULD TYPICALLY RELY UPON AS A CFO IN PREPARING THIS KIND
13 OF A PROJECTION?
14 A. YES.
15 Q. AND YOU SAT THROUGH NEARLY THE ENTIRE COURSE OF THIS
16 TRIAL; ISN'T THAT RIGHT?
17 A. YES.
18 Q. AND YOU'VE HEARD NOTHING DURING THE COURSE OF THIS TRIAL
19 THAT SUGGESTS TO YOU THAT ANY OF THE NUMBERS THAT WERE PROVIDED
20 BY HEARST THROUGH ITS LAWYERS OR IN THE VERONIS SUHLER REPORT
21 WERE WRONG; HAVE YOU?
22 A. THAT'S CORRECT.
23 Q. NOW, AT THE TIME YOU PREPARED THIS PROJECTION, YOU
24 INCLUDED NO NUMBERS FOR CURRENT EXPENSE STREAM; CORRECT?
25 A. NO REVENUE NUMBERS?
1287
WEAVER - CROSS / LINDSTROM
1 Q. FOR TODAY'S EXAMINER, NO REVENUE NUMBERS.
2 A. THAT'S CORRECT.
3 Q. AND PART OF THE REASON FOR THAT IS YOU DON'T REGARD
4 YOURSELF AS A REVENUE EXPERT; RIGHT?
5 A. THAT'S CORRECT.
6 Q. YOU HAD THE IMPRESSION, THOUGH, DID YOU NOT, THAT TODAY'S
7 EXAMINER WAS LOSING MONEY?
8 A. THAT'S CORRECT.
9 Q. AND YOU AND MR. FLAHERTY TALKED ABOUT YOUR PERCEPTIONS IN
10 THAT REGARD; ISN'T THAT RIGHT?
11 A. THAT'S CORRECT.
12 Q. AND HE AGREED WITH YOU DID HE NOT?
13 A. THAT'S CORRECT, YES.
14 Q. AND MR. INGRAM ALSO SHARED THE SAME VIEW THAT THE PAPER
15 WAS LOSING MONEY; ISN'T THAT RIGHT?
16 A. THAT'S CORRECT.
17 Q. BUT AT THAT POINT YOU DIDN'T KNOW HOW MUCH; RIGHT?
18 A. THAT'S CORRECT.
19 Q. NOW, SINCE YOUR ENGAGEMENT IN THIS MATTER, YOU'VE HAD A
20 CHANCE TO TALK WITH REVENUE EXPERTS; HAVEN'T YOU?
21 A. YES.
22 Q. INCLUDING HEARING THEIR TESTIMONY HERE IN THIS COURT;
23 ISN'T THAT RIGHT?
24 A. YES.
25 Q. AND YOU WOULD REGARD MR. CLANCY AS A REVENUE EXPERT; WOULD
1288
WEAVER - CROSS / LINDSTROM
1 YOU NOT?
2 A. YES.
3 Q. AND MR. CLANCY ACTUALLY TOOK YOUR NUMBERS AND HE FILLED
4 THEM IN; DIDN'T HE?
5 A. I WAS NOT HERE WHEN MR. CLANCY GAVE HIS DEPOSITION, SO I'M
6 NOT SURE.
7 Q. HIS TRIAL TESTIMONY.
8 A. HIS TRIAL TESTIMONY. I'M NOT SURE.
9 Q. LET ME DIRECT YOUR TESTIMONY TO CHRONICLE EXHIBIT C-23 IN
10 EVIDENCE. NOW, YOU RECOGNIZE THE TEMPLATE ON WHICH THESE NOTES
11 ARE TAKEN; ISN'T THAT RIGHT?
12 A. THAT'S CORRECT.
13 Q. AND THIS IS A DOCUMENT THAT YOU HANDED OUT AT THE MARCH
14 25TH MEETING; RIGHT?
15 A. THAT'S CORRECT.
16 Q. AND I WILL REPRESENT TO YOU THAT MR. CLANCY APPEARED IN
17 THIS COURTROOM AND TESTIFIED THAT THESE WERE HIS REVENUE
18 CALCULATIONS FOR A STAND-ALONE EXAMINER. I WANT YOU TO ASSUME
19 THAT'S TRUE.
20 SO IF YOU TAKE THESE NUMBERS FROM A REVENUE EXPERT
21 AND APPLY THEM AGAINST YOUR COST ESTIMATES, TODAY'S EXAMINER IS
22 LOSING, BY MR. CLANCY'S CALCULATION, ABOUT $40 MILLION; ISN'T
23 THAT RIGHT?
24 A. YES.
25 Q. BUT MR. CLANCY WAS USING THE 73 MILLION-DOLLAR COST
1289
WEAVER - CROSS / LINDSTROM
1 ESTIMATE; ISN'T THAT RIGHT?
2 A. THAT'S CORRECT.
3 Q. AND IF WE WERE TO USE THE NUMBER THAT YOU TOLD US WAS THE
4 CORRECT NUMBER WITHOUT SUNDAY, THE $80 MILLION, THIS 38 WOULD
5 NEED TO BE ABOUT 45 MILLION; ISN'T THAT RIGHT?
6 A. THAT'S CORRECT.
7 Q. AND IF WE WERE TO TAKE IT UP TO YOUR TESTIMONY TODAY OF
8 90 MILLION, MR. CLANCY, OUR REVENUE EXPERT, WOULD HAVE US AT
9 55 MILLION-DOLLAR LOSS; ISN'T THAT RIGHT?
10 A. THAT'S CORRECT.
11 Q. OKAY. NOW, MR. FLOOD, YOU HEARD HIS TESTIMONY HERE IN THE
12 COURTROOM; DID YOU NOT?
13 A. YES, I DID.
14 Q. HE'S ANOTHER REVENUE EXPERT; ISN'T THAT RIGHT?
15 A. THAT'S CORRECT.
16 Q. AND YOU'VE WORKED WITH THESE GENTLEMEN IN YOUR PAST
17 CAREER; RIGHT?
18 A. THAT'S NOT CORRECT.
19 Q. HAVE YOU NOT WORKED WITH EITHER FLOOD OR CLANCY?
20 A. I HAVE NOT WORKED WITH FLOOD AT ALL, AND I'VE NEVER REALLY
21 WORKED WITH MR. CLANCY. I HAVE -- WHEN I WAS IN CHICAGO, HE
22 WAS IN CHICAGO DOING DIFFERENT THINGS.
23 Q. IT'S TRUE, ISN'T IT, THAT YOU WERE ALL WITH THE TRIBUNE
24 ORGANIZATION AT ONE POINT OR ANOTHER?
25 A. THAT'S TRUE.
1290
WEAVER - CROSS / LINDSTROM
1 Q. ALL RIGHT. AND YOU HAVE NO REASON TO DOUBT MR. FLOOD'S
2 CAPABILITIES AS A REVENUE-SIDE EXPERT; DO YOU?
3 A. THAT'S CORRECT.
4 Q. NOW, LET ME SHOW YOU EXHIBIT C-322 IN EVIDENCE. THIS IS A
5 PAGE OF CALCULATIONS FROM MR. FLOOD TO WHICH HE JUST TESTIFIED
6 YESTERDAY. AND LET ME ZOOM IN, IF I MAY.
7 YOU HEARD HIM, DIDN'T YOU, WHEN HE TESTIFIED
8 YESTERDAY THAT HE MADE A CALCULATION OF THE EXAMINER'S
9 CONTRIBUTION TO THE REVENUE OF THE AGENCY? YOU HEARD THAT
10 TESTIMONY; DIDN'T YOU?
11 A. YES.
12 Q. AND HE TOLD US DURING HIS TESTIMONY, REFERRING TO THIS
13 EXHIBIT, THAT HIS CALCULATION WAS $43 MILLION FOR THE
14 EXAMINER'S CONTRIBUTION TO REVENUE; RIGHT?
15 A. YES.
16 Q. DO YOU REMEMBER THAT TESTIMONY?
17 A. ACTUALLY I DO NOT REMEMBER THE 43 MILLION.
18 Q. ALL RIGHT. WELL, I WILL REPRESENT TO YOU AND ASSUME THAT
19 IT'S TRUE THAT THE NUMBER IN THIS DOCUMENT IN EVIDENCE C-322
20 WAS ALSO TESTIFIED TO YESTERDAY BY MR. FLOOD.
21 AND THEN HERE'S ANOTHER NUMBER, $275,000. THAT
22 NUMBER IS FAMILIAR TO YOU; ISN'T IT, SIR?
23 A. YES, IT IS.
24 Q. IN FACT, THAT NUMBER WAS OBTAINED BY MR. FLOOD FROM YOU;
25 ISN'T THAT RIGHT?
1291
WEAVER - CROSS / LINDSTROM
1 A. IT CERTAINLY COULD BE. I DON'T KNOW WHERE HE GOT IT.
2 Q. ALL RIGHT. FOR THE COURT, WHAT IS THE $275,784 THAT'S
3 INDICATED ON EXHIBIT C-22?
4 A. THAT'S THE REVENUE -- I BELIEVE THAT'S THE ADVERTISING
5 REVENUE ATTRIBUTABLE TO SALES OF EXAMINER-ONLY ADVERTISING IN
6 1997, 1998. ONE OF THOSE TWO YEARS.
7 Q. ALL RIGHT. NOW, WERE YOU HERE WHEN MR. PAGE TESTIFIED?
8 A. NO.
9 Q. THIS NUMBER OF $275,000, IF I UNDERSTAND YOUR TESTIMONY,
10 THIS NUMBER, LESS THAN $300,000, REPRESENTS THOSE ADVERTISERS
11 WHO ARE ONLY IN THE EXAMINER; IS THAT RIGHT?
12 A. THAT'S MY UNDERSTANDING. I BELIEVE THERE'S A SCHEDULE
13 THAT BACKS THAT UP. I'M NOT -- I ONLY HESITATE BECAUSE I DON'T
14 HAVE THAT IN MY MIND.
15 Q. AND YOU PREPARED JUST SUCH A SCHEDULE; DID YOU NOT, SIR?
16 A. THAT'S CORRECT.
17 Q. BECAUSE YOU WANTED TO SEE, AS BEST YOU COULD, WHAT
18 REVENUES WERE ATTRIBUTABLE TO TODAY'S EXAMINER; RIGHT?
19 A. NO. I -- I DIDN'T DO IT TO DETERMINE WHAT WERE
20 ATTRIBUTABLE. I WANTED TO FIND OUT HOW MUCH ADVERTISING WAS
21 SOLD EXAMINER ONLY IN CONJUNCTION WITH FINDING OUT HOW MUCH
22 ADVERTISING WAS SOLD IN COMBINATION.
23 Q. OKAY. AND IF WE LOOK AT C-315 IN EVIDENCE, THE LAST PAGE
24 OF THAT EXHIBIT, I THINK WE'LL FIND YOUR CALCULATION IN THAT
25 REGARD; ISN'T THAT RIGHT, SIR?
1292
WEAVER - CROSS / LINDSTROM
1 A. I CAN'T READ THAT.
2 Q. THAT'S WHY I GAVE YOU THE NOTEBOOK.
3 A. OH, I'M SORRY.
4 Q. YOU CAN SEE IT THERE. AND WHILE YOU'RE LOCATING IT, LET
5 ME ZOOM IN ON YOUR TOTAL FOR 1999. THERE IT IS BIGGER THAN
6 LIFE; RIGHT?
7 A. YES, THAT'S CORRECT.
8 Q. OKAY. NOW, WILL YOU EXPLAIN TO HIS HONOR HOW YOU CAME UP
9 WITH THIS NUMBER?
10 A. THIS INFORMATION I GATHERED WHEN I WAS AT SHEPPARD, MULLIN
11 OFFICE LOOKING THROUGH THE INFORMATION THAT WAS MADE AVAILABLE
12 TO POTENTIAL PURCHASERS. AND I PICKED UP THE NUMBER OF
13 INSERTIONS, THE NUMBER OF INCHES AND THE REVENUE IN THREE
14 DIFFERENT CATEGORIES THAT WERE EXAMINER ONLY.
15 Q. OKAY. AND THE CATEGORIES WERE RETAIL; RIGHT?
16 A. YES.
17 Q. NATIONAL?
18 A. YES.
19 Q. CLASSIFIED?
20 A. YES.
21 Q. IN OTHER WORDS, ALL OF THE TYPES OF ADVERTISING THAT MIGHT
22 BE PLACED IN THE EXAMINER; CORRECT?
23 A. YES.
24 Q. IN OTHER WORDS, YOU DIDN'T LEAVE OUT ANY SIGNIFICANT
25 CATEGORY OF ADVERTISING; DID YOU?
1293
WEAVER - CROSS / LINDSTROM
1 A. HAVING HEARD MR. FLOOD'S TESTIMONY ABOUT THE SUNDAY
2 MAGAZINE, THAT'S NOT INCLUDED IN HERE, BUT I DON'T THINK IT WAS
3 INTENDED TO BE. THAT'S A FULL-RUN BUY.
4 Q. ALL RIGHT. NOW RETURNING TO MR. FLOOD, IF WE ADD UP THESE
5 TWO NUMBERS, OUR REVENUE EXPERT, MR. FLOOD, COMES UP WITH
6 SOMETHING ON THE ORDER OF $43,350,000 AS THE EXAMINER'S
7 CONTRIBUTION TO REVENUE IN 1998; RIGHT?
8 A. YES, HE DOES.
9 Q. OKAY. SO IF YOU ASSUME THAT HIS CALCULATION IS TRUE AND
10 THAT IT COSTS $90 MILLION TO PUT THE PAPER OUT THAT YEAR, THEN
11 MR. FLOOD HAS US AT A LOSS OF HOW MUCH?
12 A. FIRST, I DON'T KNOW WHETHER MR. FLOOD INCLUDED CIRCULATION
13 REVENUE. YOU MIGHT BE ABLE TO PROVIDE SOME INSIGHT INTO THAT.
14 I THINK THAT'S ADVERTISING REVENUE.
15 Q. ALL RIGHT. MR. FLOOD IN HIS MATERIALS DID LOOK AT
16 ADVERTISING AND HE DID LOOK AT CIRCULATION; ISN'T THAT RIGHT?
17 A. I DON'T KNOW. I HAVEN'T SEEN THOSE MATERIALS.
18 Q. WELL, LET ME SHOW THEM TO YOU. THEY'RE -- AGAIN, THIS IS
19 322 IN EVIDENCE. ON THE VERY NEXT PAGE HE HAS A CIRCULATION
20 NUMBER, DOES HE NOT, OF $7 MILLION? DO YOU SEE THAT?
21 A. (WITNESS EXAMINES DOCUMENT.) NO, I DON'T SEE THAT.
22 Q. IT'S ON THE SCREEN HERE.
23 A. I SEE IT ON THE SCREEN. I WAS LOOKING IN 322.
24 Q. OKAY. DO YOU SEE IT ON THE SCREEN, THE $7 MILLION? I
25 WANT YOU TO ASSUME THAT FIGURE IS TRUE FROM MR. FLOOD. AND,
1294
WEAVER - CROSS / LINDSTROM
1 INDEED, IF WE GO BACK TO C-323, CLANCY'S DOCUMENT, WE SEE HE
2 HAS A VERY SIMILAR CALCULATION FOR CIRCULATION; DOES HE NOT,
3 7,400,000?
4 A. YES.
5 Q. OKAY. SO IF WE TAKE THESE TWO NUMBERS, WE COME UP TO
6 ROUGHLY 50 MILLION IN REVENUE THAT ACCORDING TO MR. FLOOD WAS
7 CONTRIBUTED BY THE EXAMINER IN 1998; RIGHT? 43 PLUS 7.
8 A. THAT'S CORRECT.
9 Q. AND IF IT COST 90 MILLION TO PUT THAT PAPER OUT THAT YEAR,
10 THEN IT LOST 50 MILLION -- $40 MILLION; ISN'T THAT RIGHT?
11 A. YES.
12 Q. THIS ISN'T A TRICK QUESTION. YOU'RE THE CFO.
13 MR. LINDSTROM: YOUR HONOR, MAY I APPROACH THE
14 EASEL?
15 THE COURT: YES, YOU MAY.
16 BY MR. LINDSTROM:
17 Q. LET ME KEEP TRACK OF THIS IF I MAY. REILLY EXPERTS.
18 NOW, A FEW MOMENTS AGO WE TALKED ABOUT CLANCY AND HE
19 CAME UP, AS WE SAW, WITH 45 TO $55 MILLION IN LOSSES FOR
20 TODAY'S EXAMINER; CORRECT? WE JUST WENT THROUGH THAT.
21 A. YES.
22 Q. ALL RIGHT. NOW, ON FLOOD, FLOOD HAS 50 MILLION IN
23 REVENUES AND APPLIED AGAINST YOUR 90 MILLION-DOLLAR COST
24 ESTIMATE, WHAT DOES THAT YIELD AS A LOSS?
25 A. THAT YIELDS $40 MILLION.
1295
WEAVER - CROSS / LINDSTROM
1 Q. OKAY. AND AS LONG AS I'M UP HERE, YOU HEARD YOUR COHORT,
2 MR. INGRAM, TESTIFY YESTERDAY; DID YOU NOT?
3 A. YES.
4 Q. AND HE SAID IT WAS 30 TO 50 IN HIS JUDGMENT; RIGHT?
5 THE COURT: I THINK "COLLEAGUE" WOULD BE A BETTER
6 TERM, MR. LINDSTROM.
7 MR. LINDSTROM: I'M SORRY. COLLEAGUE.
8 THE WITNESS: YES.
9 BY MR. LINDSTROM:
10 Q. HIS BEST ESTIMATE WAS 30 TO 50 MILLION OF LOSSES; RIGHT?
11 AND THEN YOU HEARD MR. SCHMIDT AND HE TOLD US, DID HE NOT, THAT
12 HIS ESTIMATE WAS 75 MILLION?
13 A. I DON'T RECALL THAT. I REMEMBER MILLIONS BUT I DON'T
14 REMEMBER THE NUMBER.
15 Q. ALL RIGHT. I'LL REPRESENT TO YOU THAT THAT WAS HIS
16 TESTIMONY.
17 AND YOU WERE HERE IN COURT, SIR, WERE YOU NOT, WHEN
18 MR. OSBORN TESTIFIED?
19 A. YES.
20 Q. AND DO YOU RECALL HIM SAYING THAT HIS ESTIMATE OF THE
21 LOSSES TODAY'S EXAMINER WAS SUSTAINING WAS ON THE ORDER OF 20
22 TO $25 MILLION?
23 A. YES.
24 Q. AND MR. FLAHERTY, YOU HAD A NUMBER OF DISCUSSIONS WITH
25 MR. FLAHERTY CONCERNING THE PROFITABILITY OF TODAY'S EXAMINER;
1296
WEAVER - CROSS / LINDSTROM
1 DID YOU NOT?
2 A. THAT'S CORRECT.
3 Q. AND HE TOLD YOU THAT HE HAD DONE AN INCREMENTAL ANALYSIS
4 THAT SUGGESTED THAT THE PAPER WAS LOSING ABOUT $40 MILLION A
5 YEAR; ISN'T THAT RIGHT?
6 A. I WOULD HAVE -- I WOULD CHARACTERIZE HIM AS SAYING AT
7 LEAST 30.
8 Q. AT LEAST 30 IS YOUR RECOLLECTION?
9 A. THAT'S CORRECT.
10 Q. AND YOUR OWN ESTIMATE, SIR, IS 30 TO $50 MILLION OF ANNUAL
11 LOSSES; IS THAT NOT CORRECT?
12 A. MY ESTIMATE IS THAT THE NEWSPAPER AGENCY AND --
13 Q. DO YOU HAVE AN ESTIMATE, SIR?
14 A. YES, I WOULD ESTIMATE THAT THE COMBINATION OF THE SPENDING
15 BY THE NEWSPAPER AGENCY AND THE EXAMINER EXCEEDS THE REVENUE
16 THAT WOULD BE FAIRLY ATTRIBUTABLE TO THE EXAMINER BY SOMETHING
17 IN THE NEIGHBORHOOD OF 20 TO $50 MILLION.
18 Q. 20 TO 50.
19 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
20
21
22
23
24
25
1297
WEAVER - CROSS / LINDSTROM
1 BY MR. LINDSTROM:
2 Q. NOW, LET'S TALK ABOUT THE CALCULATIONS THAT YOU PERFORMED.
3 YOU ARE A CFO, RIGHT?
4 A. THAT'S CORRECT.
5 Q. AND YOU HAVE EXTENSIVE EXPERIENCE IN THE NEWSPAPER
6 INDUSTRY, RIGHT?
7 A. THAT'S CORRECT.
8 Q. AND YOU HAVE GOT AN MBA FROM DARTMOUTH?
9 A. YES.
10 Q. AND YOU WENT TO BERKELEY BEFORE THAT?
11 A. YES.
12 Q. AND YOU WORKED AT, I THINK IT WAS THEN KNOWN AS ARTHUR
13 YOUNG IN NEW YORK, CORRECT?
14 A. YES.
15 Q. AND YOU HAVE DONE A LOT OF PROFIT-AND-LOSS PROJECTIONS IN
16 YOUR TIME; IS THAT FAIR TO SAY?
17 A. YES.
18 Q. NOW, AT SOME POINT IN TIME DID YOU PERFORM AN INCREMENTAL
19 ANALYSIS OF THE TYPE ADJUDICATED BY THE DEPARTMENT OF JUSTICE
20 IN THE HONOLULU CASE?
21 A. WELL, I AM NOT FAMILIAR WITH THAT -- THAT CASE.
22 Q. ARE YOU FAMILIAR WITH AN INCREMENTAL ANALYSIS?
23 A. YES.
24 Q. AND WHO ASKED YOU TO PERFORM THAT ANALYSIS?
25 A. I DID IT MYSELF.
1298
WEAVER - CROSS / LINDSTROM
1 Q. WHY DID YOU UNDERTAKE TO PERFORM THAT ANALYSIS?
2 A. TO ATTEMPT TO PUT A VALUE ON THE CHRONICLE AS A
3 STAND-ALONE BUSINESS.
4 Q. ISN'T IT TRUE THAT YOU WERE ASKED BY THE LAWYERS IN THIS
5 CASE TO MAKE SUCH AN INCREMENTAL ANALYSIS?
6 A. NO.
7 Q. AS PART OF YOUR ANALYSIS, YOU LOOKED, AS I UNDERSTAND IT,
8 AT WHAT WOULD HAPPEN TO THE REVENUES AND COSTS OF THE SAN
9 FRANCISCO NEWS AGENCY WITHOUT THE EXAMINER; ISN'T THAT FAIR TO
10 SAY?
11 A. YES.
12 Q. AND WOULD YOU EXPLAIN TO HIS HONOR WHAT YOU CONCLUDED IN
13 THAT REGARD?
14 A. I PREPARED A -- A HANDWRITTEN AND THEN A MORE FORMAL
15 ANALYSIS THAT LOOKED AT A RANGE OF REVENUE ASSUMPTIONS FOR THE
16 SAN FRANCISCO NEWSPAPER AGENCY/CHRONICLE WITHOUT THE EXAMINER
17 AND A RANGE OF OPERATING INCOME FIGURES FOR THE SAN FRANCISCO
18 NEWSPAPER AGENCY/CHRONICLE WITHOUT THE EXAMINER. AND I USED
19 THAT, THEN, TO VALUE THE CHRONICLE AS A STAND-ALONE OPERATION
20 FREE OF THE JOA.
21 Q. AND WHAT YOU CONCLUDED WAS THAT THE AGENCY WOULD BE NET
22 BETTER OFF BY 30 TO $50 MILLION WITHOUT THE EXAMINER; ISN'T
23 THAT RIGHT?
24 A. I'D HAVE TO LOOK AT THE NUMBERS. CAN WE LOOK THROUGH
25 THOSE?
1299
WEAVER - CROSS / LINDSTROM
1 MR. LINDSTROM: YOUR HONOR, IF I MAY APPROACH THE
2 WITNESS WITH HIS DEPOSITION TRANSCRIPT, I WOULD LIKE TO ATTEMPT
3 TO REFRESH HIS RECOLLECTION ON THIS POINT.
4 THE COURT: ALL RIGHT. I DON'T BELIEVE I HAVE
5 HIS . . .
6 MR. LINDSTROM: LET ME TENDER IT UP, YOUR HONOR. I
7 HAVE TWO VOLUMES -- THERE WERE TWO VOLUMES. AND IF I MAY HAND
8 THEM TO YOUR CLERK, AND THEN I WILL PLACE BOTH VOLUMES BEFORE
9 THE WITNESS SHOULD WE NEED THEM.
10 BY MR. LINDSTROM:
11 Q. AND LET ME ASK YOU, SIR, IF YOU TAKE A MOMENT TO LOOK AT
12 YOUR TESTIMONY AT PAGE 83, LINES 3 TO 25, AND READ THAT TO
13 YOURSELF, IF YOU WOULD.
14 A. (WITNESS READING DOCUMENT).
15 Q. HAVE YOU COMPLETED THAT REVIEW?
16 A. NO, I HAVEN'T.
17 Q. DO YOU HAVE THE PAGE BEFORE YOU?
18 A. YES. I WAS LOOKING AT WHAT'S IN FRONT OF IT SO THAT I
19 COULD REFRESH MY MEMORY AS TO WHERE WE WERE IN THAT DISCUSSION.
20 Q. TAKE YOUR TIME.
21 A. (WITNESS READING DOCUMENT) YES, I . . .
22 Q. AND WOULD YOU TAKE A MOMENT ALSO TO LOOK AT YOUR TESTIMONY
23 ON THE NEXT PAGE, PAGE 84, FROM LINES 15 TO 23.
24 A. YES.
25 Q. DO THOSE PASSAGES REFRESH YOUR RECOLLECTION AS TO THE
1300
WEAVER - CROSS / LINDSTROM
1 NUMBERS?
2 A. YES.
3 Q. AND WHAT WERE THE NUMBERS THAT RESULTED FROM YOUR
4 INCREMENTAL ANALYSIS OF THE EFFECT ON AGENCY REVENUES AND COSTS
5 OF SHEDDING THE EXAMINER?
6 A. I DON'T BELIEVE THESE RELATE TO THAT SPECIFIC POINT IN
7 TIME. I AM NOT TRYING TO BE ARGUMENTATIVE, BUT I THINK THESE
8 PASSAGES RELATE TO MY THINKING EARLIER ON IN THE PROCESS, AS WE
9 WERE REVIEWING THE $80 MILLION, AND HOW I CAME UP WITH THAT.
10 Q. SO IS IT YOUR TESTIMONY YOU DON'T BELIEVE THESE PASSAGES
11 RELATE TO YOUR INCREMENTAL ANALYSIS?
12 A. THESE DON'T RELATE TO THE ANALYSIS I HAD IN MIND THAT I --
13 THAT I PREPARED MARCH 24TH AND -- 23RD, 24TH AND 25TH.
14 Q. ALL RIGHT. WHAT WAS THE RESULT OF THAT ANALYSIS?
15 A. WELL, I'D LIKE -- I DON'T REMEMBER THE EXACT NUMBERS.
16 THAT'S WHY I WAS SUGGESTING WE LOOK AT THAT IN DETAIL.
17 Q. WHICH DOCUMENT IS IT? AND PERHAPS I CAN DIRECT YOU TO ITS
18 INCLUSION IN THE NOTEBOOK, IF IT IS.
19 A. THERE WERE HANDWRITTEN NOTES.
20 Q. TAKE A LOOK AT C311, WHICH ARE YOUR PREPARATION NOTES FOR
21 THE MARCH 25TH MEETING.
22 A. AH, THAT'S IT, YES. THAT'S WHAT I WAS REFERRING TO.
23 Q. WOULD YOU TAKE A LOOK AT THOSE, PLEASE, AND AFTER YOU HAVE
24 HAD A CHANCE TO REVIEW THEM, TELL THE COURT WHAT THE RESULTS
25 WERE OF YOUR INCREMENTAL ANALYSIS.
1301
WEAVER - CROSS / LINDSTROM
1 A. I AM REFERRING TO THE PAGE MARKED AS R000452.
2 AND UNDER THE -- IN THE MIDDLE UNDER -- UNDER "JOA
3 HEARST NUMBER 5, "I START DOING AN INCREMENTAL ANALYSIS,
4 SUGGESTING THAT, FIRST, THERE ARE $75 MILLION IN SERVICES FROM
5 THE SNA. AND I TAKE THE $75 MILLION AND ADD TO THAT THE
6 $50 MILLION IN EXCESS PROFITS DISTRIBUTED TO THE CHRONICLE AND
7 COME UP WITH $125 MILLION.
8 Q. ALL RIGHT. WOULD YOU TAKE US THROUGH THE REST OF THE
9 ANALYSIS?
10 A. YES. THEN UNDER SUBSECTION C, THE CHRONICLE CURRENTLY
11 GETS 225 MILLION IN SERVICES FROM SNA. THAT IS BASICALLY THE
12 DIFFERENCE BETWEEN THE 75 -- I'D HAVE TO GO THROUGH THAT AGAIN.
13 225 MILLION PLUS 50 MILLION OR 275 MILLION. SO I WOULD
14 REPHRASE THAT. THE FIRST A AND B SUGGESTS WHAT VALUE HEARST
15 RECEIVES, 125 MILLION, WHAT VALUE THE CHRONICLE RECEIVES,
16 275 MILLION.
17 Q. HAVE YOU COMPLETED YOUR RESPONSE?
18 A. NO.
19 I THEN UNDER -- UNDER D, ACTUALLY, THERE IS A
20 $350 MILLION REVENUE FIGURE, AND I SUBTRACT FROM THAT
21 $350 MILLION REVENUE FIGURE THE $225 MILLION SERVICES FROM SAN
22 FRANCISCO NEWSPAPER AGENCY, THE CHRONICLE, RECEIVES. THAT NETS
23 TO 125 MILLION.
24 ON THE LEFT-HAND SIDE YOU CAN SEE 125 MINUS 40,
25 WHICH WOULD BE -- IT WAS AN ESTIMATE I WAS USING AT THIS
1302
WEAVER - CROSS / LINDSTROM
1 PARTICULAR POINT IN TIME FOR THE COSTS FOR EDITORIAL AND OTHER
2 EXPENSES OF THE CHRONICLE, AND I COME UP WITH AN $85 MILLION
3 OPERATING PROFIT FOR THE CHRONICLE AS A STAND-ALONE. SO . . .
4 Q. AND SO WHAT WAS YOUR CONCLUSION, SIR, ABOUT THE EFFECT ON
5 THE REVENUES OF THE SAN FRANCISCO NEWS AGENCY AND THE COSTS OF
6 THAT ENTITY IF IT WERE TO BE IN OPERATION WITHOUT THE EXAMINER?
7 A. MY CONCLUSION IS THAT THE CHRONICLE, AS A STAND-ALONE,
8 WOULD EARN MORE MONEY THAN IT DOES NET OF ITS SHARE OF THE
9 EXCESS PROFITS.
10 Q. WELL, IT'S YOUR VIEW, ISN'T IT, SIR, THAT THE CHRONICLE IS
11 SUBSIDIZING THE EXAMINER? ISN'T THAT RIGHT?
12 A. I AM NOT SURE WHAT YOU MEAN BY "SUBSIDIZE." I READ THE
13 JOA TO SAY THAT THESE TWO PEOPLE HAVE AGREED TO WORK TOGETHER,
14 AND THE FACT THAT MORE MONEY MAY BE SPENT OR -- ON THE EXAMINER
15 THAN THE CHRONICLE RELATIVE TO THE REVENUE, IF YOU WANT TO
16 CHARACTERIZE THAT AS A "SUBSIDY," THAT'S FINE.
17 Q. WELL, ISN'T IT TRUE, SIR, THAT YOU VIEW IT AS A SUBSIDY?
18 A. NO, I DON'T VIEW IT AS A SUBSIDY. I VIEW IT AS A
19 WORKING -- AS AN AGREEMENT THAT IS BEING CARRIED OUT BY THE TWO
20 PARTIES -- OR THREE PARTIES.
21 Q. YOU WERE HERE WHEN DR. COMANOR GAVE THAT SAME TESTIMONY,
22 WEREN'T YOU?
23 A. YES.
24 Q. ALL RIGHT. BUT I TOOK YOUR DEPOSITION BEFORE DR. COMANOR
25 GOT ON THE STAND, DIDN'T I?
1303
WEAVER - CROSS / LINDSTROM
1 A. THAT'S CORRECT.
2 Q. AND, AMONG OTHER THINGS, I ASKED YOU ABOUT THE MARCH 25TH
3 MEETING; ISN'T THAT RIGHT?
4 A. YES.
5 Q. AND AT THE MARCH 25TH MEETING, ONE OF THIS ASSEMBLED GROUP
6 OF EXPERTS EXPRESSED THE VIEW THAT THE CHRONICLE WAS
7 SUBSIDIZING THE EXAMINER; ISN'T THAT RIGHT?
8 A. YES.
9 Q. AND YOU DID NOT DISAGREE WITH THAT VIEW, DID YOU?
10 A. THAT'S CORRECT.
11 Q. IN FACT, YOU TOLD ME IT WAS YOUR OWN VIEW; ISN'T THAT
12 RIGHT, SIR?
13 A. THAT'S CORRECT.
14 Q. SO YOUR VIEW IS DIFFERENT IN THAT REGARD TODAY THAN IT WAS
15 AT THE TIME I TOOK YOUR DEPOSITION; IS THAT YOUR TESTIMONY?
16 A. NO, IT'S NOT.
17 Q. NOW, IN FACT, ISN'T IT TRUE THAT YOU AND DR. COMANOR HAD A
18 MEETING IN WHICH IT WAS DISCUSSED THAT THE CHRONICLE WAS
19 SUBSIDIZING THE EXAMINER?
20 A. YES.
21 Q. WHO EXPRESSED THAT VIEW, YOU OR DR. COMANOR, OR WAS IT A
22 CONSENSUS?
23 A. AS I RECALL THE CONVERSATION, WE WERE TALKING ABOUT THE
24 REVENUE AND EXPENSES, AND DR. COMANOR TOOK THE INITIAL POSITION
25 THAT IF YOU ALLOCATE REVENUE SIMPLY ON A CIRCULATION BASIS
1304
WEAVER - CROSS / LINDSTROM
1 BETWEEN THE TWO, THE CHRONICLE AND THE EXAMINER, WE TALKED
2 ABOUT THAT, AND IF YOU DO THAT, YOU FIND THAT THE EXAMINER IS
3 SOMETHING CLOSE TO A BREAK-EVEN.
4 AND I BELIEVE I EXPRESSED THE OPINION THAT THAT --
5 THAT TO ME WAS NOT A REALISTIC WAY TO ALLOCATE REVENUE. THAT
6 PROBABLY OVERSTATED THE REVENUE THAT WOULD BE ALLOCATED TO THE
7 EXAMINER.
8 THEREFORE, AS WE HAVE SAID AND AS I HAVE SAID, THERE
9 IS MORE MONEY BEING SPENT TO PRODUCE AND DISTRIBUTE THE
10 EXAMINER THAN THERE IS REVENUE ATTRIBUTABLE TO IT.
11 Q. IT IS TRUE, IS IT NOT, SIR, THAT IT IS YOUR OWN VIEW THAT
12 THE CHRONICLE IS EFFECTIVELY SUBSIDIZING THE EXAMINER TODAY?
13 YOUR ANSWER, PLEASE?
14 A. YES.
15 Q. AND YOU EXPRESSED THAT VIEW TO DR. COMANOR, DID YOU NOT?
16 A. YES.
17 Q. NOW, YOU WERE HERE IN COURT WHEN DR. COMANOR TESTIFIED;
18 ISN'T THAT RIGHT?
19 A. YES.
20 Q. AND YOU HEARD DR. COMANOR GIVE THIS ANSWER TO THIS
21 QUESTION PUT TO HIM DURING DIRECT EXAMINATION BY MR. SHULMAN,
22 DID YOU NOT? AT PAGE 440 OF THE TRANSCRIPT:
23 "Q. DID YOU -- IN CONSIDERING WHETHER THE
24 EXAMINER IS A FAILING COMPANY, DID YOU ENDEAVOR
25 TO LOOK AT HOW THE EXAMINER WOULD DO OUTSIDE OF
1305
WEAVER - CROSS / LINDSTROM
1 OR IN THE ABSENCE OF THE JOINT OPERATING
2 AGREEMENT?
3 "A. NO. IT SEEMED TO ME --
4 "MR. SHULMAN: IS THERE AN ANSWER? IS THAT
5 ANSWER NO?
6 "A. (WITNESS NODS HEAD)."
7 YOU WERE HERE WHEN DR. COMANOR GAVE THAT TESTIMONY;
8 ISN'T THAT RIGHT?
9 A. YES.
10 Q. AND WHEN HE GAVE IT, YOU KNEW THAT IT WASN'T TRUE; ISN'T
11 THAT RIGHT?
12 A. NO.
13 Q. WELL, YOU HAD HAD A MEETING WITH HIM ON APRIL 6TH WHERE
14 THE TWO OF YOU DISCUSSED WHETHER OR NOT THE EXAMINER WAS A
15 FAILING COMPANY; ISN'T THAT RIGHT?
16 A. NO. WE DISCUSSED THE -- THE ECONOMICS OF THE BUSINESS,
17 AND I WAS TRYING TO PROVIDE MR. COMANOR WITH DIFFERENT WAYS OF
18 LOOKING AT THE ALLOCATION OF REVENUE.
19 MR. LINDSTROM: YOUR HONOR, I WOULD LIKE TO READ
20 FROM THE WITNESS' DEPOSITION TRANSCRIPT, DATED APRIL 17TH, PAGE
21 324, LINES 14 TO 22.
22 THE COURT: 324?
23 MR. LINDSTROM: YES, YOUR HONOR.
24 THE COURT: PROCEED.
25 MR. LINDSTROM: "Q. WAS THERE ANY DISCUSSION OF
1306
WEAVER - CROSS / LINDSTROM
1 WHETHER THE EXISTING SAN FRANCISCO EXAMINER WAS
2 A FAILING FIRM OR COMPANY?
3 "A. YES. I THINK THERE WAS A DISCUSSION
4 THAT SUGGESTED THAT THE EXAMINER, AS IT EXISTS
5 TODAY, COSTS THE NEWSPAPER AGENCY MORE THAN IT
6 BRINGS IN IN REVENUE AND THE FACT THAT IN FACT
7 THE EXAMINER SPENDS ONLY -- IN SOME WAYS SPENDS
8 ONLY 50 CENTS OUT OF A DOLLAR FOR ALL OF THE
9 ADDITIONAL EXPENSES IT INCURS."
10 BY MR. LINDSTROM:
11 Q. WERE THOSE QUESTIONS PUT TO YOU AND DID YOU GIVE THOSE
12 ANSWERS AT YOUR DEPOSITION?
13 A. YES.
14 Q. AND YOU WERE UNDER OATH?
15 A. YES.
16 Q. AND IT WAS EXACTLY THIS DISCUSSION WITH DR. COMANOR THAT
17 PROMPTED THE CONCLUSION THAT THE CHRONICLE WAS SUBSIDIZING THE
18 EXAMINER; ISN'T THAT RIGHT?
19 DO YOU WANT TO LOOK ON THE NEXT PAGE, LINES 4 TO 9?
20 A. I WOULD CALL YOUR ATTENTION TO LINES 8 AND 9. I BELIEVE
21 THAT'S ANOTHER WAY OF STATING WHAT I TRIED TO EXPLAIN.
22 Q. THE SUBSIDY, CORRECT?
23 A. I WOULD GO -- IT SEEMS TO ME THIS IS A QUESTION OF
24 SEMANTICS, BUT I WOULD GO WITH LINES 17 TO 22 ON PAGE 324.
25 IF YOU WANT ME TO USE THE WORD "SUBSIDY," I WILL BE
1307
WEAVER - CROSS / LINDSTROM
1 GLAD TO.
2 Q. THE QUESTION --
3 THE COURT: THE QUESTION IS WHETHER YOU GAVE THIS
4 TESTIMONY.
5 THE WITNESS: OH, YES, I DID.
6 THE COURT: ALL RIGHT.
7 BY MR. LINDSTROM:
8 Q. A QUESTION OF SEMANTICS REGARDING THE TERM "SUBSIDY,"
9 RIGHT? THAT'S WHAT YOU JUST SAID.
10 A. THAT'S WHAT I SAID.
11 Q. WERE YOU HERE IN THIS COURTROOM WHEN MR. ALIOTO QUESTIONED
12 JOHN SIAS ABOUT THE MEANING OF THE TERM "SUBSIDY"?
13 A. YES.
14 Q. AND WERE YOU HERE WHEN MR. ALIOTO SUGGESTED THAT MR. SIAS
15 HAD NO BASIS FOR THE REPRESENTATION HE MADE TO THE COURT THAT
16 THE CHRONICLE WAS SUBSIDIZING THE EXAMINER? DO YOU RECALL HIM
17 BEING ASKED THOSE QUESTIONS?
18 A. HE WAS ASKED THOSE QUESTIONS. I DON'T KNOW THAT THAT'S
19 THE SAME AS WHAT YOU JUST SAID.
20 Q. SUBSIDY. IN YOUR MIND THE CHRONICLE IS SUBSIDIZING THE
21 EXAMINER, ISN'T THAT RIGHT, ACCORDING TO THE COMMON LAY
22 INTERPRETATION OF THE TERM "SUBSIDY"?
23 A. YES. CAN I TRY IT THIS WAY? WITHIN THE -- WITHIN THE JOA
24 AND THE SAN FRANCISCO NEWSPAPER AGENCY, THE CHRONICLE
25 SUBSIDIZES THE EXAMINER.
1308
WEAVER - CROSS / LINDSTROM
1 Q. AND WITHOUT THE JOA THE EXAMINER IS A FAILING FIRM.
2 THAT'S WHAT YOU TOLD DR. COMANOR; ISN'T THAT RIGHT?
3 A. YES.
4 Q. THANK YOU.
5 NOW, WHEN DR. COMANOR INDICATED IN RESPONSE TO
6 MR. SHULMAN'S QUESTION THAT HE HAD NOT CONSIDERED WHETHER THE
7 EXAMINER WAS A FAILING COMPANY, YOU KNOW THAT TO BE NOT TRUE;
8 ISN'T THAT RIGHT?
9 YOU TALKED WITH HIM ABOUT IT, DID YOU NOT, SIR?
10 A. YES.
11 Q. AND THEN THE NEXT PORTION OF THE QUESTION:
12 "DID YOU" -- REFERRING TO DR. COMANOR --
13 "ENDEAVOR TO LOOK AT HOW THE EXAMINER WOULD DO
14 OUTSIDE OF OR IN ABSENCE OF THE JOINT OPERATING
15 AGREEMENT?
16 THE ANSWER WAS, "NO."
17 AND YET YOU KNOW HE DID THAT VERY ANALYSIS, DON'T
18 YOU?
19 A. NO, I DON'T KNOW THAT AND I DON'T THINK HE DID THAT
20 ANALYSIS.
21 Q. HE SENT IT TO YOU BY FAX, DID HE NOT?
22 A. HE SENT ME A FAX THAT SAID, "LOOK AT THIS." THIS WAS A FAX
23 THAT BASICALLY ALLOCATED REVENUE IN THAT SAME METHOD I HAD
24 SUGGESTED EARLIER BASED UPON CIRCULATION.
25 Q. WELL, WAS IT A FAX THAT INCLUDED AN ENDEAVOR TO LOOK AT
1309
WEAVER - CROSS / LINDSTROM
1 HOW THE EXAMINER WOULD DO OUTSIDE OF OR IN THE ABSENCE OF THE
2 JOINT OPERATING AGREEMENT?
3 A. NO.
4 Q. ALL RIGHT. LET'S TAKE A LOOK AT IT, IN YOUR NOTEBOOK
5 C345.
6 ON THE SCREEN HERE THE FIRST PAGE IS A FAX COVER
7 SHEET, RIGHT?
8 A. THAT'S CORRECT.
9 Q. AND THIS WAS ADDRESSED TO MICHAEL WEAVER, RIGHT?
10 A. YES.
11 Q. AT THE ALIOTO LAW FIRM, CORRECT?
12 A. YES.
13 Q. AND THEN SOMEONE HAS WRITTEN IN HANDWRITING, "MIKE, I WILL
14 BE INTERESTED IN YOUR COMMENTS. BILL."
15 DO YOU SEE THAT?
16 A. YES.
17 Q. NOW, LET ME ASK YOU FIRST, THIS WAS NOT PRODUCED BY YOU AS
18 PART OF YOUR PRODUCTION OF DOCUMENTS TO OPPOSING COUNSEL IN
19 THIS LAWSUIT PRECEDING YOUR DEPOSITION; ISN'T THAT RIGHT?
20 A. THAT'S CORRECT.
21 Q. AND EACH OF THE EXPERTS WAS ASKED, WERE THEY NOT, TO TURN
22 OVER THE DOCUMENTS WHICH THEY HAD GENERATED IN CONJUNCTION WITH
23 THIS ASSIGNMENT TO THE OTHER SIDE? AT LEAST YOU WERE ASKED TO
24 DO THAT; ISN'T THAT RIGHT?
25 A. YES.
1310
WEAVER - CROSS / LINDSTROM
1 Q. NOW, LET ME SHOW YOU BEFORE WE MOVE ON A COPY OF EXHIBIT
2 C347 IN EVIDENCE.
3 MAY I APPROACH, YOUR HONOR?
4 THE COURT: YES.
5 MR. LINDSTROM: AND I HAVE A COPY OF THIS FOR YOUR
6 HONOR. I DO NOT HAVE -- IT'S NOT IN THE NOTEBOOK AND SO I WILL
7 TENDER IT TO YOUR CLERK, C347 IN EVIDENCE.
8 THE COURT: VERY WELL. THANK YOU.
9 BY MR. LINDSTROM:
10 Q. NOW, I WILL REPRESENT TO YOU, SIR, THAT THIS IS WHAT
11 DR. COMANOR SENT TO MY PARTNER, TOM ROSCH, SEATED OVER HERE AT
12 THE COUNSEL TABLE, J. THOMAS ROSCH, ESQUIRE:
13 "DAN SHULMAN ASKED THAT I SEND YOU THE
14 ATTACHED DOCUMENTS. BILL COMANOR."
15 AND ATTACHED IS A COLLECTION OF MATERIALS THAT
16 DR. COMANOR SENT IN ANTICIPATION OF HIS DEPOSITION TESTIMONY.
17 WOULD YOU LOOK THROUGH THIS EXHIBIT, SIR, AND TELL
18 THE COURT WHETHER YOU CAN FIND THE FAX THAT DR. COMANOR SENT TO
19 YOU?
20 A. I DON'T SEE IT IN THIS STACK OF PAPERS.
21 Q. IT'S NOT THERE, IS IT?
22 A. THAT'S CORRECT.
23 Q. NOW, LET'S GO BACK TO WHAT HE SENT TO YOU BUT DIDN'T SEND
24 TO MR. ROSCH. 4/14, JUST NINE DAYS BEFORE THE FAX TO
25 MR. ROSCH; ISN'T THAT RIGHT?
1311
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. HE SENT YOU THIS DOCUMENT AND HE WAS INTERESTED IN YOUR
3 COMMENTS.
4 NOW, MY FIRST QUESTION IS: DID YOU KNOW THIS WAS
5 COMING?
6 A. NO, NOT UNTIL HE CALLED ME AND TOLD ME HE WAS GOING TO
7 SEND IT TO ME.
8 Q. WHAT DID HE TELL YOU HE WAS SENDING YOU? DO YOU REMEMBER?
9 A. NOT SPECIFICALLY.
10 Q. WELL, LET'S LOOK AND SEE WHAT HE SENT.
11 ON PAGE 2 OF THE EXHIBIT, "1998 INCOME STATEMENTS
12 EXAMINER," RIGHT-HAND COLUMN, "WITHOUT JOA."
13 YOU UNDERSTOOD THAT TO MEAN WHEN YOU RECEIVED THIS
14 FAX, DID YOU NOT, SIR, THAT THIS WAS DR. COMANOR'S ASSESSMENT
15 OF THE INCOME AND EXPENSES OF THE EXAMINER WITHOUT THE JOA?
16 A. YES.
17 Q. ALL RIGHT. LET ME ASK YOU, THEN, ONE MORE TIME, WHEN
18 DR. COMANOR ANSWERED "NO" TO THIS QUESTION, DID YOU ENDEAVOR TO
19 LOOK AT HOW THE EXAMINER WOULD DO OUTSIDE OF OR IN THE ANSWER
20 OF THE JOINT -- IN THE ABSENCE OF THE JOINT OPERATING AGREEMENT
21 HE ANSWERED THAT QUESTION NO. THAT WAS NOT TRUE, ACCORDING TO
22 YOUR OWN KNOWLEDGE. CORRECT?
23 MR. SHULMAN: I OBJECT, YOUR HONOR. THAT'S
24 ARGUMENTATIVE AND IT'S CONTRARY TO WHAT THE EVIDENCE IS.
25 THE COURT: OBJECTION OVERRULED.
1312
WEAVER - CROSS / LINDSTROM
1 THE WITNESS: RESTATE IT.
2 BY MR. LINDSTROM:
3 Q. ALL RIGHT. YOU KNEW WHEN YOU GOT THIS DOCUMENT, SIR,
4 THAT, IN FACT, EXACTLY WHAT IT WAS WAS AN ENDEAVOR BY
5 DR. COMANOR TO LOOK AT HOW THE EXAMINER WOULD DO OUTSIDE OF OR
6 IN THE ABSENCE OF THE JOINT OPERATING AGREEMENT; ISN'T THAT
7 TRUE?
8 A. YES.
9 Q. AND HE PROJECTED HERE A NET OPERATING LOSS OF MINUS THREE,
10 RIGHT?
11 A. YES.
12 Q. AND AFTER TAKING DEPRECIATION, A LOSS OF MINUS $9 MILLION,
13 RIGHT?
14 A. YES.
15 Q. OKAY. AND THAT WAS PREDICATED ON HIS ASSUMPTION OF
16 ALLOCATING 19 PERCENT OF THE COSTS AND REVENUES OF THE AGENCY
17 TO THE EXAMINER, RIGHT?
18 A. YES.
19 Q. AND YOU TOLD HIM THAT WASN'T A GOOD ASSUMPTION, CORRECT?
20 A. YES.
21 Q. AND, IN FACT, TO MAKE THAT ALLOCATION HAS THE EFFECT OF
22 OVERSTATING THE EXAMINER'S CONTRIBUTION TO REVENUE, RIGHT?
23 A. IN MY OPINION, YES.
24 Q. AND, INDEED, DR. COMANOR HIMSELF INDICATES IN THE FOOTNOTE
25 THAT IT ALSO HAS THE EFFECT OF UNDERSTATING THE EXAMINER'S
1313
WEAVER - CROSS / LINDSTROM
1 PORTION OF THE COSTS. RIGHT?
2 A. I DON'T SEE THAT IN THE FOOTNOTE.
3 Q. WELL, IF YOU LOOK AT THE FOOTNOTE -- IT'S ON THE SCREEN.
4 AND AT THE VERY BOTTOM DO YOU SEE THERE HE HAS GOT A DOUBLE
5 ASTERISK AND THEN HE SAYS, "ASSUMES REVENUES AND EXPENSES ARE
6 ALLOCATED ACCORDING TO CIRCULATION PROPORTIONS."
7 DO YOU SEE THAT?
8 A. YES.
9 Q. AND THEN IN THE NEXT SENTENCE HE SAYS, "PROBABLY
10 UNDERSTATES EXPENSES." RIGHT?
11 A. OH, YES, I SEE AT THE VERY END, YES.
12 Q. RIGHT. AND THIS DOUBLE ASTERISK REFERS TO THE CALCULATION
13 OF THE 19 PERCENT THAT HE HAS ATTRIBUTED TO THE CHRONICLE -- OR
14 TO THE EXAMINER, RIGHT?
15 A. YES.
16 Q. OKAY. NOW -- AND YOU AGREE WITH HIS SUGGESTION HERE THAT
17 TO -- TO MAKE THAT ALLOCATION PROBABLY UNDERSTATES THE
18 EXAMINER'S EXPENSES, RIGHT?
19 A. YES.
20 Q. OKAY. SO IF THE REVENUES ARE OVERSTATED AND THE EXPENSES
21 ARE UNDERSTATED, THEN THE 9 MILLION IS GOING TO HAVE TO GO UP
22 UNDER A PROPER ANALYSIS, RIGHT?
23 A. IT BECOMES A BIGGER NEGATIVE NUMBER?
24 Q. YES. THANK YOU.
25 A. YES.
1314
WEAVER - CROSS / LINDSTROM
1 Q. DID YOU EXPRESS THAT SENTIMENT TO DR. COMANOR?
2 A. YES.
3 Q. AND YOU NEVER SAW THIS DOCUMENT AGAIN, DID YOU
4 (INDICATING), UNTIL YOUR DEPOSITION?
5 A. I THINK THAT'S TRUE, YES.
6 Q. NOW, LET ME TAKE YOU TO PLAINTIFF'S EXHIBIT 51. THIS IS A
7 DECLARATION OF MR. ASHER.
8 YOU WERE HERE WHEN HE WAS EXAMINED BY THE
9 PLAINTIFFS, CORRECT?
10 A. YES.
11 Q. LET ME DIRECT YOUR ATTENTION TO PARAGRAPH 3 AND IN
12 PARTICULAR THIS SENTENCE:
13 "THE EXAMINER, CURRENTLY WOULD NOT BE
14 PROFITABLE ON A STAND-ALONE BASIS OUTSIDE THE
15 JOA."
16 DO YOU SEE THAT STATEMENT?
17 A. YES, I DO.
18 Q. YOU AGREE WITH THAT STATEMENT BY MR. ASHER, DO YOU NOT?
19 A. I DO.
20 Q. AND, IN FACT, EVERY ONE OF THE REILLY EXPERTS AGREES WITH
21 THAT STATEMENT; ISN'T THAT TRUE?
22 A. THAT'S TRUE.
23 Q. AND AT THE MARCH 25TH MEETING WE WERE TOLD BY MR. OSBORN
24 THERE WAS AN EMPHATIC CONSENSUS BY THOSE EXPERTS THAT TODAY'S
25 EXAMINER WAS LOSING MONEY, RIGHT?
1315
WEAVER - CROSS / LINDSTROM
1 A. WE WERE TOLD BY MR. OSBORN THAT, APPARENTLY.
2 Q. WELL, AND, IN FACT, NO ONE DISAGREED WITH THE NUMBER THAT
3 HE THREW OUT OF $20 MILLION LOSSES OR GREATER; ISN'T THAT
4 RIGHT?
5 A. YES.
6 Q. AND, IN FACT, AS WE HAVE SEEN FROM THIS ANALYSIS,
7 VIRTUALLY EVERY SINGLE EXPERT IN THEIR OWN MIND HAS A LARGER
8 NUMBER.
9 A. THAT'S CORRECT.
10 Q. OKAY. NOW, IN THE NEXT SENTENCE, YOU WERE HERE, WEREN'T
11 YOU, WHEN MR. ALIOTO QUESTIONED MR. ASHER ON THURSDAY AFTERNOON
12 AND THEN AGAIN ON FRIDAY REGARDING WHAT BASIS THAT GENTLEMAN
13 HAD FOR MAKING THIS STATEMENT, "THE COSTS TO PUBLISH THE
14 EXAMINER CURRENTLY EXCEED THE REVENUES IT CONTRIBUTES TO THE
15 JOA BY MILLIONS OF DOLLARS ANNUALLY."
16 DO YOU SEE THAT?
17 A. YES.
18 Q. YOU AGREE WITH THAT STATEMENT BY MR. ASHER, DO YOU NOT?
19 A. I DO.
20 Q. AND SO DO ALL THE REILLY EXPERTS, ACCORDING TO YOUR
21 KNOWLEDGE; ISN'T THAT TRUE?
22 A. YES.
23 Q. AND IN THE NEXT SENTENCE:
24 "AS A RESULT, CURRENTLY THE OPERATIONS OF
25 THE CHRONICLE SUBSIDIZE THE LOSSES WITHIN THE
1316
WEAVER - CROSS / LINDSTROM
1 JOA FROM THE OPERATION OF THE EXAMINER."
2 DO YOU SEE THAT SENTENCE?
3 A. YES.
4 Q. AND, AGAIN, YOU AGREE WITH THE STATEMENT OF MR. ASHER, DO
5 YOU NOT?
6 A. YES.
7 Q. NOW, BEFORE MR. ALIOTO QUESTIONED MR. ASHER, HAD YOU MADE
8 KNOWN TO HIM WHAT YOUR VIEWS WERE REGARDING THE LOSSES
9 SUSTAINED BY TODAY'S EXAMINER?
10 THE COURT: MADE KNOWN TO ALIOTO?
11 MR. LINDSTROM: I'M SORRY?
12 THE COURT: MADE KNOWN TO ALIOTO?
13 MR. LINDSTROM: YES, TO PLAINTIFF'S COUNSEL.
14 THE WITNESS: I THINK IT'S FAIR TO INFER THAT HE HAS
15 READ THE DOCUMENTS AND UNDERSTANDS THAT. EVEN IN MY OWN
16 DECLARATION YOU COULD CERTAINLY DRAW THAT CONCLUSION.
17 BY MR. LINDSTROM:
18 Q. ALL RIGHT. MR. ALIOTO WAS AT THE MARCH 25TH MEETING, WAS
19 HE NOT?
20 A. THAT'S CORRECT.
21 Q. HE HEARD THE EMPHATIC CONSENSUS OF THE REILLY EXPERTS;
22 ISN'T THAT TRUE?
23 A. YOU ARE USING MR. OSBORN'S WORDS. HE HEARD THE CONSENSUS
24 OF THE EXPERTS.
25 Q. AND HE WAS AT THE MEETING BETWEEN YOU AND DR. COMANOR;
1317
WEAVER - CROSS / LINDSTROM
1 ISN'T THAT RIGHT?
2 A. YES.
3 Q. WHERE THE TWO OF YOU DISCUSSED WHETHER OR NOT THE EXAMINER
4 WAS A FAILING FIRM?
5 A. HE WAS AT THE MEETING WHERE THE TWO OF US DISCUSSED THE
6 ECONOMICS OF THE EXAMINER.
7 Q. AND WHERE YOU EXPRESSED THE VIEW THAT THE REVENUES EXCEED
8 THE COSTS OR VICE VERSA?
9 A. THE COSTS EXCEED THE REVENUES, YES.
10 Q. NOW, LET ME CHANGE SUBJECTS HERE.
11 THE COURT: WHILE YOU ARE DOING THAT, HOW MUCH
12 LONGER DO YOU HAVE OF THIS WITNESS?
13 MR. LINDSTROM: I WOULD SAY 15 MINUTES, MAYBE, YOUR
14 HONOR.
15 THE COURT: IS THIS A CONVENIENT TIME TO TAKE A
16 BREAK?
17 MR. LINDSTROM: WHY DON'T WE DO THAT NOW AND I WILL
18 COLLECT MY NOTES AND SEE IF WE CAN'T EXPEDITE THINGS.
19 THE COURT: WE WILL TAKE UNTIL 25 AFTER.
20 (RECESS TAKEN AT 10:10 A.M.)
21 (PROCEEDINGS RESUMED AT 10:29 A.M.)
22 THE CLERK: PLEASE REMAIN SEATED. COME TO ORDER.
23 THIS COURT IS NOW IN SESSION.
24 THE COURT: VERY WELL. MR. WEAVER, WOULD YOU RESUME
25 THE STAND, SIR?
1318
WEAVER - CROSS / LINDSTROM
1 BY MR. LINDSTROM:
2 Q. MR. WEAVER, WE HAVE BEEN TALKING ABOUT TODAY'S EXAMINER,
3 AND I WANT TO SWITCH SUBJECTS AND MOVE ON TO THE PAPER THAT'S
4 ENVISIONED HERE IN YOUR DECLARATION THAT MR. SHULMAN TALKED TO
5 YOU ABOUT.
6 PARAGRAPH 4 OF YOUR DECLARATION SPEAKS IN TERMS OF A
7 VIABLE PAPER WHICH WOULD BE COMPETITIVE WITH THE CHRONICLE.
8 AND I THINK I UNDERSTAND FROM YOUR DIRECT TESTIMONY
9 THAT IN YOUR MIND THAT NEEDS TO BE A SUBSTITUTE FOR THE
10 CHRONICLE, CORRECT?
11 A. YES.
12 Q. AND I ASSUME THAT THE PAPER YOU ENVISION WOULD HAVE ALL OF
13 THE CHARACTERISTICS THAT MR. INGRAM TOLD US ABOUT YESTERDAY; IS
14 THAT RIGHT?
15 A. IN MAKING THIS DECLARATION AND IN MAKING THESE
16 CALCULATIONS, THAT'S CORRECT.
17 Q. OKAY. AND WITHOUT BURDENING THE RECORD WITH GOING THROUGH
18 THAT, IT WOULD NEED TO BE OF A SUFFICIENT LENGTH AND CONTENT
19 AND SO FORTH TO BE COMPETITIVE WITH THE EXAMINER, RIGHT?
20 A. WITH THE CHRONICLE, RIGHT.
21 Q. I'M SORRY.
22 AND IT WOULD HAVE TO BE LIKE TODAY'S EXAMINER; ISN'T
23 THAT RIGHT?
24 A. YES.
25 Q. IT WOULD HAVE TO BE A DAILY METROPOLITAN PAPER, RIGHT?
1319
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. NOW, IN WHAT MARKETS DID YOU ENVISION THIS PAPER COMPETING
3 WHEN YOU EXECUTED YOUR DECLARATION?
4 A. THE PAPER THAT IS SPOKEN ABOUT IN THE DECLARATION IS TO
5 PRODUCE A PAPER SIMILAR IN SUBSTANCE AND IN DISTRIBUTION TO
6 TODAY'S EXAMINER.
7 Q. SO IT WOULD BE IN ALL THE SAME MARKETS WHERE TODAY'S
8 EXAMINER COMPETES, RIGHT?
9 A. THERE ARE DIFFERENT PARTS OF THE DECLARATION. THE ONE
10 THAT RELATES TO $90 MILLION, YES. THE PART THAT RELATES TO THE
11 LOSSES, MY -- I WOULD ENVISION A SMALLER AND WAS ENVISIONING A
12 SMALLER PAPER IN A SMALLER MARKET.
13 Q. OKAY.
14 A. A DISTRIBUTION -- "A SMALLER PAPER," MEANING LESS
15 DISTRIBUTION IN A MORE CONDENSED MARKET.
16 Q. BUT THE MARKET YOU ENVISIONED DIDN'T STOP WITH THE
17 BOUNDARIES OF THE CITY AND COUNTY OF SAN FRANCISCO, DID IT?
18 A. THAT'S CORRECT.
19 Q. THE PAPER THAT YOU ARE TALKING ABOUT HERE, THE ONE THAT
20 YOU MODELED FOR MR. REILLY, WOULD COMPETE IN PARTS OF MARIN
21 COUNTY, RIGHT?
22 A. WE DISCUSSED COMPETING IN PARTS OF MARIN COUNTY, YES.
23 Q. AND THE EAST BAY?
24 A. YES.
25 Q. AND IN -- DOWN THE PENINSULA, CORRECT?
1320
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. ALL RIGHT. WHAT IS THE SAN FRANCISCO MARKET IN YOUR
3 JUDGMENT?
4 A. THE SAN FRANCISCO MARKET FOR THIS -- THE NEWSPAPER THAT I
5 MODELED? OR -- I AM NOT SURE OF THE QUESTION. WHAT'S THE SAN
6 FRANCISCO MARKET?
7 Q. WELL, LET'S START WITH THE PAPER THAT YOU MODELED FOR
8 MR. REILLY.
9 A. THE SAN FRANCISCO MARKET WOULD BE CENTERED AROUND THE CITY
10 AND COUNTY OF SAN FRANCISCO AND INCLUDE COMMUTERS IN AND OUT OF
11 THE CITY AND OTHERS WHO ARE INTERESTED IN AND TIED TO THE CITY
12 BECAUSE THEY WORK HERE IN SAN FRANCISCO OR HAVE OTHER CLOSE
13 TIES TO THE CITY.
14 Q. SO THAT WOULD INCLUDE PEOPLE WHO RESIDE OUTSIDE THE CITY
15 AND COUNTY OF SAN FRANCISCO, CORRECT?
16 A. YES, COMMUTERS GENERALLY WILL INCLUDE THAT.
17 Q. AND THEY'RE IN THE SAN FRANCISCO MARKET IN YOUR JUDGMENT;
18 ISN'T THAT RIGHT?
19 A. THEY'RE IN THE MARKET FOR A SAN FRANCISCO NEWSPAPER.
20 Q. THEY'RE IN WHAT YOU TERMED A "SAN FRANCISCO METROPOLITAN
21 MARKET"; ISN'T THAT RIGHT?
22 A. NO, I DON'T BELIEVE I SAID THAT. I SAID YOU WOULD HAVE A
23 SAN FRANCISCO METROPOLITAN -- I THINK I SAID THERE WOULD BE A
24 METROPOLITAN NEWSPAPER.
25 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
1321
WEAVER - CROSS / LINDSTROM
1 Q. LET ME SHOW YOU YOUR PREPARATION NOTES, EXHIBIT C-311 IN
2 EVIDENCE. AND BEFORE I DO THAT, LET ME ASK YOU A FEW QUESTIONS
3 ABOUT THIS.
4 YOU TOOK THESE NOTES ON MARCH 24TH; RIGHT?
5 A. THAT'S CORRECT.
6 Q. SOME NINE PAGES OF NOTES; RIGHT?
7 A. YES.
8 Q. AND YOU DID SO IN ANTICIPATION OF THE MEETING OF REILLY
9 EXPERTS TO OCCUR THE FOLLOWING DAY; RIGHT?
10 A. THAT'S CORRECT.
11 Q. AND YOU HAD BEEN ON THIS ASSIGNMENT SINCE THE VERY EARLY
12 PART OF FEBRUARY; RIGHT?
13 A. THAT'S CORRECT.
14 Q. AND YOU KNEW THAT A NUMBER OF THE PEOPLE WHO WERE COMING
15 TOGETHER ON SATURDAY WERE NEW TO THE TEAM; RIGHT?
16 A. THAT'S CORRECT.
17 Q. AND ONE OF THE THINGS YOU DID WAS PREPARE INFORMATION THAT
18 YOU WANTED TO SHARE WITH THE ASSEMBLED EXPERTS; RIGHT?
19 A. THAT'S CORRECT.
20 Q. AND YOU ALSO PULLED TOGETHER YOUR THOUGHTS ON A WHOLE HOST
21 OF TOPICS IN ANTICIPATION OF WHAT THE DISCUSSION MIGHT INVOLVE
22 THE NEXT DAY; RIGHT?
23 A. YES.
24 Q. AND THERE CONTAINED -- THOSE THOUGHTS OF YOURS ARE
25 CONTAINED IN C-311, RIGHT, YOUR HANDWRITTEN NOTES?
1322
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. OKAY. NOW LET ME ASK YOU FIRST, DIRECTING YOUR ATTENTION
3 TO BATES PAGE NUMBER 449, YOU EXPRESSED THE VIEW THAT:
4 "A FANG-PRODUCED EXAMINER WILL NOT BE
5 'COMPETITIVE...'"
6 DO YOU SEE THAT?
7 A. (WITNESS EXAMINES DOCUMENT.) I SEE WHERE I HAVE WRITTEN
8 DOWN:
9 "FANG-PRODUCED EXAMINER WILL NOT BE," QUOTE,
10 "'COMPETITIVE...'
11 Q. AND BENEATH THAT YOU HAVE A NOTATION TO YOURSELF:
12 "... IN A MARKETPLACE FOR A PAID DAILY
13 NEWSPAPER IN SAN FRANCISCO AND THE THREE-COUNTY
14 SAN FRANCISCO METROPOLITAN AREA."
15 DO YOU SEE THAT?
16 A. YES.
17 Q. WHAT IS THE THREE-COUNTY SAN FRANCISCO METROPOLITAN AREA?
18 A. I BELIEVE, WHEN I WAS LOOKING AT THAT, THAT THE
19 THREE-COUNTY AREA INCLUDES SAN MATEO AND MARIN COUNTIES AS WELL
20 AS SAN FRANCISCO COUNTY.
21 Q. OKAY. NOW, WHAT WAS THE RELEVANCE TO YOUR THOUGHT PROCESS
22 OF INCLUDING THIS REFERENCE TO THE THREE-COUNTY SAN FRANCISCO
23 METROPOLITAN AREA?
24 A. I WAS LOOKING AT OTHER DEFINITIONS THAT HAVE BEEN USED,
25 PARTICULARLY IN THE VERONIS SUHLER OFFERING, THAT SUGGESTED
1323
WEAVER - CROSS / LINDSTROM
1 THERE WAS AN EIGHT- OR NINE-COUNTY AREA IN WHICH THERE WAS
2 COMPETITION.
3 Q. AND YOU CALL THAT THE BAY AREA MARKETPLACE; CORRECT?
4 A. I PROBABLY WOULD. I DON'T KNOW IF I HAD IN HERE OR NOT.
5 Q. NOW, THE SAN FRANCISCO METROPOLITAN MARKETPLACE, AS YOU
6 ENVISION IT, INCLUDES SAN FRANCISCO AND THESE OUTLYING AREAS;
7 ISN'T THAT RIGHT?
8 A. NO. I BELIEVE THIS IS A DEFINITION OF THE SAN FRANCISCO
9 METROPOLITAN AREA THAT'S COMMONLY ACCEPTED IN MARKETING
10 CIRCLES. I THINK THAT'S WHERE I GOT IT. I THINK I HAD SEEN A
11 REFERENCE OR WAS LOOKING AT A REFERENCE TO THE SAN FRANCISCO
12 METROPOLITAN AREA DEFINED FOR MARKETING PURPOSES AS SAN
13 FRANCISCO COUNTY, SAN MATEO COUNTY AND MARIN COUNTY.
14 Q. AND THAT WAS THE SAME AS THE MARKET IN WHICH THE REILLY
15 PAPER WAS GOING TO OPERATE PLUS PARTS OF THE EAST BAY WEST OF
16 THE BERKELEY HILLS; RIGHT?
17 A. THE REILLY PAPER WAS GOING TO OPERATE IN CERTAIN PARTS OF
18 SAN MATEO AND MARIN COUNTY AND IN SELECTED AREAS IN BERKELEY,
19 OAKLAND AND PIEDMONT.
20 Q. AND THOSE ARE ALL AREAS IN WHICH TODAY'S EXAMINER
21 COMPETES; RIGHT?
22 A. YES.
23 Q. AND THEY'RE ALL AREAS IN WHICH TODAY'S CHRONICLE COMPETES;
24 ISN'T THAT RIGHT?
25 A. YES.
1324
WEAVER - CROSS / LINDSTROM
1 Q. AND THERE ARE OTHER COMPETITORS IN THOSE MARKETS; ISN'T
2 THAT SO?
3 A. YES.
4 Q. NOW, YOU VIEW THIS MARKETPLACE AS VERY COMPETITIVE; ISN'T
5 THAT FAIR TO SAY?
6 A. YES.
7 Q. AND IF WE GO BACK TO THE PRECEDING PAGE, THE NUMBER ONE
8 FIRST THOUGHT THAT YOU HAD TO YOURSELF:
9 "... GIVEN ALL THE COMPETITION THAT CURRENTLY
10 EXISTS IN SAN FRANCISCO AND THE BAY AREA."
11 WHAT DID YOU MEAN BY THAT STATEMENT, SIR?
12 A. MY THOUGHTS HERE WERE WHAT COULD IT POSSIBLY MEAN IN THE
13 JOA TO MAINTAIN COMPETITION GIVEN THAT ALL -- THAT THERE IS A
14 LOT OF COMPETITION THAT CURRENTLY EXISTS AND THAT DID EXIST IN
15 1965.
16 Q. AND IN YOUR MIND THE CURRENT COMPETITION INCLUDES
17 WEEKLIES; RIGHT?
18 A. YES.
19 Q. OTHER DAILIES?
20 A. YES.
21 Q. AND MR. FANG'S GROUP OF THRICE WEEKLIES; RIGHT?
22 A. YES.
23 Q. THAT WOULD INCLUDE, AMONG OTHERS, THE INDEPENDENT IS;
24 CORRECT?
25 A. THAT'S WHAT I WAS REFERRING TO IN FANG'S GROUP OF THRICE
1325
WEAVER - CROSS / LINDSTROM
1 WEEKLIES.
2 Q. NOW, FROM THE VERY BEGINNING OF YOUR WORK WITH MR. REILLY
3 ON THIS PROCESS, YOU WERE CONCERNED ABOUT POSSIBLE COMPETITIVE
4 RESPONSES FROM BAY AREA PAPERS OTHER THAN THE CHRONICLE; ISN'T
5 THAT TRUE?
6 A. YES.
7 Q. AND IN PARTICULAR YOU WERE VERY WORRIED THAT THIS SAN
8 FRANCISCO-FOCUSED PAPER YOU WERE PLANNING WOULD BE MET WITH A
9 COMPETITIVE RESPONSE FROM THE SAN JOSE MERCURY NEWS; ISN'T THAT
10 RIGHT?
11 A. NO.
12 Q. YOU DID VIEW THE SAN JOSE MERCURY NEWS AS A FORMIDABLE
13 COMPETITOR IN THE SAN FRANCISCO MARKETPLACE; IS THAT NOT TRUE?
14 A. IN THE MARKETPLACE THAT WE DEFINED NOW FOR THE REILLEY
15 PAPER?
16 Q. YES.
17 A. NOT FOR READERS.
18 Q. FOR ADVERTISING?
19 A. I BELIEVE SO.
20 Q. LET'S LOOK AT ANOTHER SET OF YOUR NOTES. THIS IS C-302 IN
21 EVIDENCE. IT'S THERE IN THE NOTEBOOK.
22 THESE ARE YOUR VERY, VERY FIRST NOTES YOU TOOK IN
23 THIS ENGAGEMENT, ISN'T THAT RIGHT, THE DAY BEFORE YOU WERE TO
24 MEET WITH MR. REILLY FOR THE FIRST TIME?
25 A. YES.
1326
WEAVER - CROSS / LINDSTROM
1 Q. AND YOU WANTED TO ORGANIZE YOUR THOUGHTS BEFORE YOU MET
2 WITH HIM; ISN'T THAT RIGHT?
3 A. YES.
4 Q. AND SO IN ITEM ONE YOU START OUT TALKING ABOUT DUE
5 DILIGENCE YOU'D WANT TO PERFORM; CORRECT?
6 A. YES.
7 Q. AND THEN WE GO OVER TO THE SECOND PAGE WE HAVE, "DUE
8 DILIGENCE 2." AND YOU SAY:
9 "COMPETITION PRINT IN SF, DAILY, WEEKLY,
10 ALTERNATIVE."
11 THOSE WERE ALL THINGS THAT -- ON WHICH YOU WANTED TO
12 CONDUCT DUE DILIGENCE; ISN'T THAT RIGHT?
13 A. I WANTED TO UNDERSTAND, YES.
14 Q. BECAUSE THE EXAMINER YOU WERE MODELING FOR REILLY WAS
15 GOING TO FACE COMPETITION FROM ALL THESE SOURCES; CORRECT?
16 A. YES.
17 Q. INCLUDING THE WEB AND BROADCAST; RIGHT?
18 A. YES.
19 Q. AND THEN UNDER "STRATEGY," "DEFINE MARKET, READERS";
20 RIGHT? THAT'S EYEBALLS AS YOU TOLD ME; CORRECT?
21 A. YES.
22 Q. ADVERTISERS; RIGHT?
23 A. YES.
24 Q. AND UNDER "GEOGRAPHIC" YOU'VE GOT "SF ONLY." DO YOU SEE
25 THAT?
1327
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. THAT'S DR. COMANOR'S DEFINITION, ISN'T IT, OF THE MARKET?
3 A. THAT IS HIS DEFINITION, YES.
4 Q. AND FROM THE VERY BEGINNING YOU WERE TALKING ABOUT A
5 MARKET THAT INCLUDED OTHERS; WERE YOU NOT?
6 A. I WAS LOOKING AT A BROADER MARKETPLACE THAN SF ONLY, YES.
7 Q. BECAUSE YOU VIEWED IT AS THE RELEVANT MARKETPLACE, ISN'T
8 THAT RIGHT, SIR, FOR A SAN FRANCISCO-FOCUSED PAPER?
9 A. NO.
10 Q. ALL RIGHT. LET'S TAKE A LOOK AT THE MEMO THAT YOU WROTE
11 AFTER THAT FIRST MEETING. THIS IS H-1038 IN EVIDENCE, SUMMARY
12 OF DISCUSSIONS FEBRUARY 2 TO 3.
13 THOSE ARE THE MEETINGS THAT YOU HAD WITH MR. REILLY;
14 RIGHT?
15 A. COULD YOU GIVE ME A NUMBER HERE?
16 Q. H-1038.
17 A. (WITNESS EXAMINES DOCUMENTS.) YES.
18 Q. NOW, YOU PREPARED THIS SUMMARY IN ORDER TO CAPTURE THE
19 ESSENCE OF WHAT WAS DISCUSSED IN THE TWO DAYS OF MEETINGS;
20 RIGHT?
21 A. YES.
22 Q. AND THE FIRST MEETING WAS WITH YOU, FLAHERTY AND REILLY ON
23 THE 2ND; RIGHT?
24 A. YES.
25 Q. AND THEN THE NEXT DAY YOU AND INGRAM AND REILLY MET;
1328
WEAVER - CROSS / LINDSTROM
1 RIGHT?
2 A. YES.
3 Q. OKAY. AND YOU DESCRIBE, DO YOU NOT, IN THE OVERVIEW, THE
4 MARKET THAT REILLY WAS SEEKING TO SERVE AS INCLUDING, NUMBER
5 ONE, THE PEOPLE WHO LIVE IN THE CITY AND COUNTY OF SAN
6 FRANCISCO; RIGHT?
7 A. YES.
8 Q. THAT'S DR. COMANOR'S MARKET; CORRECT?
9 A. YES.
10 Q. IN ADDITION, YOU WERE TARGETING THOSE PEOPLE WHO ARE SAN
11 FRANCISCO ORIENTED BECAUSE THEY WORK IN THE CITY OR INVOLVED
12 WITH THE THEATER AND THE ARTS; RIGHT?
13 A. YES.
14 Q. SO THOSE ARE INBOUND COMMUTERS; CORRECT?
15 A. YES.
16 Q. AND THEY'RE PEOPLE TO WHOM YOU WERE GOING TO SELL HOME
17 DELIVERY COPIES WHO MIGHT BE INTERESTED IN ENTERTAINMENT OR THE
18 ARTS OR SPORTS HERE IN THE CITY; RIGHT?
19 A. YES.
20 Q. AND THEY WERE PART OF THE READERSHIP FOR EYEBALLS AND FOR
21 ADVERTISING; RIGHT?
22 A. YES.
23 Q. OKAY. AND THEN ONE OF THE THINGS YOU WANT TO ANALYZE IS A
24 DEFINITION OF THE GEOGRAPHIC MARKET TO BE SERVED; RIGHT?
25 A. YES.
1329
WEAVER - CROSS / LINDSTROM
1 Q. A COMPETITIVE ANALYSIS OF SAN FRANCISCO AND BAY AREA PRINT
2 AND BROADCAST MEDIA?
3 A. YES.
4 Q. AND THEN DOWN HERE UNDER 9:
5 "POSSIBLE COMPETITIVE RESPONSES OF THE
6 CHRONICLE AND OTHER BAY AREA NEWSPAPERS."
7 DO YOU SEE THAT?
8 A. YES.
9 Q. WHO WERE YOU TALKING ABOUT THERE? OTHER BAY AREA
10 NEWSPAPERS BESIDES THE CHRONICLE, WHO MIGHT THAT BE?
11 A. SAN MATEO TIMES, SAN JOSE MERCURY NEWS, OAKLAND TRIBUNE,
12 CONTRA COSTA TIMES, ALL OF THOSE DAILY NEWSPAPERS THAT ARE IN
13 THAT EIGHT- OR NINE-MARKET AREA.
14 Q. COMPETITORS. AND THAT WOULD INCLUDE THE MARIN INDEPENDENT
15 JOURNAL AS WELL; RIGHT?
16 A. YES.
17 Q. AND YOU CONTINUED, AS YOU DID YOUR DUE DILIGENCE, TO HAVE
18 CONCERNS ABOUT COMPETITIVE RESPONSES FROM THESE OTHER BAY AREA
19 NEWSPAPERS; ISN'T THAT RIGHT, SIR?
20 A. YES.
21 Q. SO, FOR EXAMPLE, YOU SENT THIS E-MAIL TO MR. REILLY. THIS
22 IS EXHIBIT C-303. LET'S ZOOM IN.
23 THIS IS AN E-MAIL THAT YOU SENT TO CLINTON REILLY ON
24 OR ABOUT THE DATE THAT IT BEARS, FEBRUARY 22ND; RIGHT?
25 A. (WITNESS EXAMINES DOCUMENT.) YES.
1330
WEAVER - CROSS / LINDSTROM
1 Q. AND THIS IS SOME 20 DAYS AFTER YOUR INITIAL MEETINGS;
2 RIGHT?
3 A. YES.
4 Q. AND YOU OFFER SOME -- A FEW MORE THOUGHTS ON THE EXAMINER
5 SITUATION. THAT'S YOUR OPENING LINE; CORRECT?
6 A. YES.
7 Q. AND THEN YOU INDICATE:
8 "ALSO, WE HAVEN'T FOCUSED ON THE MARKET
9 RISKS AND THE POSSIBLE COMPETITIVE RESPONSES OF
10 THE CHRONICLE AND THE OTHER BAY AREA
11 NEWSPAPERS."
12 DO YOU SEE THAT?
13 A. YES.
14 Q. WHY WAS IT NECESSARY FOR YOU TO CALL TO MR. REILLY'S
15 ATTENTION THE NEED TO ASSESS POSSIBLE COMPETITIVE RESPONSES OF
16 THE CHRONICLE AND OTHER BAY AREA NEWSPAPERS?
17 A. I THINK IT'S IMPORTANT TO UNDERSTAND IF OTHER BAY AREA
18 NEWSPAPERS CAN RESPOND IN A WAY THAT WOULD NEGATIVELY IMPACT
19 THE PROPOSED EXAMINER.
20 Q. YOU WERE CONCERNED THAT THEY COULD IMPEDE THE POTENTIAL
21 SUCCESS OF THE REILLY EXAMINER; RIGHT?
22 A. I WAS CONCERNED THAT WE UNDERSTAND WHETHER THEY COULD HAVE
23 AN IMPACT ON A REILLY EXAMINER, YES.
24 Q. EVEN HERE IN THE CITY OF SAN FRANCISCO; RIGHT?
25 A. YES.
1331
WEAVER - CROSS / LINDSTROM
1 Q. NOW, YOUR MOTHER LIVES IN THE EAST BAY; RIGHT?
2 A. THAT'S CORRECT.
3 Q. AND WHEN YOU GET ON THE BART TO COME INTO THE CITY, YOU
4 CAN FIND THE SAN FRANCISCO PAPERS OUT THERE IN CERRITOS; RIGHT?
5 A. YES, IN EL CERRITO.
6 Q. CERRITO, THANK YOU.
7 A. EL CERRITO.
8 Q. WHEN YOU GET OFF AND WALK UP MARKET STREET, AS YOU WALK
9 DOWN MARKET STREET FROM THE BART TERMINAL OR FROM THE FERRY
10 TERMINAL, YOU CAN FIND ON THE STREETS OF SAN FRANCISCO TODAY
11 EVERY ONE OF THOSE NEWSPAPERS YOU IDENTIFIED; ISN'T THAT RIGHT?
12 A. I DON'T KNOW SPECIFICALLY; BUT, YES, I AGREE THAT I CAN
13 FIND THOSE OTHER NEWSPAPERS IN SAN FRANCISCO FOR SALE.
14 Q. CERTAINLY THE SAN JOSE MERCURY; RIGHT?
15 A. I JUST HAVEN'T SEEN THEM. I'M AGREEING THAT THOSE ARE
16 AVAILABLE IN SAN FRANCISCO FOR SALE.
17 Q. OKAY. AND AS YOU WALK UP THE STREET, YOU ALSO SEE THE LOS
18 ANGELES TIMES FOR SALE IN SAN FRANCISCO; ISN'T THAT RIGHT?
19 A. I DON'T KNOW IF THERE'S A NEWS RACK FOR THE LOS ANGELES
20 TIMES OR IF I CAN SEE THE LOS ANGELES TIMES WALKING UP THE
21 STREET, BUT I KNOW THE LOS ANGELES TIMES IS AVAILABLE FOR SALE
22 IN SAN FRANCISCO.
23 Q. ALL RIGHT. AND YOU KNOW THAT THE NEW YORK TIMES IS
24 AVAILABLE?
25 A. YES.
1332
WEAVER - CROSS / LINDSTROM
1 Q. AND YOU KNOW THAT THE WALL STREET JOURNAL IS AVAILABLE?
2 A. YES.
3 Q. AND YOU KNOW THAT U.S.A. TODAY IS AVAILABLE?
4 A. YES.
5 Q. ALL IN THE MARKET FOR SALE ON THE STREET IN THE CITY OF
6 SAN FRANCISCO; ISN'T THAT RIGHT?
7 A. YES.
8 Q. NOW, LET ME ASK YOU A QUESTION. WHEN I DROVE INTO COURT
9 THIS MORNING, I CAME UP LOMBARD STREET AND I PASSED TWO
10 BILLBOARDS, ONE FOR THE NEW YORK TIMES AND ONE FOR THE WALL
11 STREET JOURNAL.
12 MR. ALIOTO: OBJECTION.
13 THE COURT: SUSTAINED.
14 MR. LINDSTROM: IT'S HYPOTHETICAL, YOUR HONOR.
15 Q. I WANT YOU TO ASSUME THAT THOSE TWO --
16 THE COURT: MR. LINDSTROM, STRAIGHTEN OUT YOUR
17 QUESTIONS.
18 BY MR. LINDSTROM:
19 Q. TO YOUR KNOWLEDGE BOTH THE NEW YORK TIMES AND THE WALL
20 STREET JOURNAL ARE CURRENTLY SEEKING ENHANCED READERSHIP IN THE
21 CITY OF SAN FRANCISCO; ISN'T THAT RIGHT?
22 A. IT'S APPARENT TO ME THAT THE NEW YORK TIMES IS AND I WOULD
23 ASSUME THE WALL STREET JOURNAL IS.
24 Q. NOW, SIR, YOU PERSONALLY WOULDN'T AGREE, WOULD YOU, WITH
25 THE STATEMENT THAT WITHOUT THE EXAMINER, THE CHRONICLE WOULD
1333
WEAVER - CROSS / LINDSTROM
1 HAVE A MONOPOLY IN THE MARKETPLACE?
2 A. NO, I WOULD NOT AGREE WITH THAT.
3 Q. AND IT'S YOUR VIEW THAT NO PAPER HAS A MONOPOLY IN THIS
4 MARKETPLACE; ISN'T THAT RIGHT?
5 A. YES, THAT'S MY VIEW.
6 Q. AND THAT WOULD EVEN BE TRUE IF THE EXAMINER WERE TO EXIT
7 THE MARKETPLACE; CORRECT?
8 A. THAT'S MY VIEW, YES.
9 Q. NOW, RETURNING TO YOUR DECLARATION, THE SUBSIDY THAT YOU
10 INDICATED WOULD BE REQUIRED OF $50 MILLION A YEAR, THAT WILL BE
11 REQUIRED NO MATTER WHO WAS TO OPERATE THE EXAMINER; ISN'T THAT
12 TRUE?
13 A. YES.
14 Q. WHETHER NEW YORK TIMES WAS TO OPERATE THE EXAMINER; RIGHT?
15 A. YES.
16 Q. OR THE FANGS?
17 A. YES.
18 Q. OR REILLY OR GANNETT OR ANY OF THESE OTHER EXISTING
19 PUBLISHERS; ISN'T THAT TRUE?
20 A. YES.
21 Q. AND IN YOUR DEFINITION YOU INDICATE YOU THINK THAT THAT
22 SUBSIDY OF $50 MILLION WOULD BE REQUIRED FOR A MINIMUM OF THREE
23 YEARS; RIGHT?
24 A. I BELIEVE IT SAYS UP TO THREE YEARS, YES.
25 Q. AND IN YOUR DEPOSITION YOU INDICATED THAT YOU THOUGHT
1334
WEAVER - CROSS / LINDSTROM
1 MAYBE THAT IT WAS MORE LIKE FOUR OR FIVE YEARS; RIGHT?
2 A. YES.
3 Q. BECAUSE YOUR MODEL OF A 50 MILLION-DOLLAR A YEAR COST
4 PAPER ASSUMES THAT THAT PAPER IS ALREADY AT A COMPETITIVE
5 PARITY LEVEL WITH THE CHRONICLE; RIGHT?
6 A. CAN YOU CLARIFY THAT? I'M NOT SURE EXACTLY.
7 Q. IT'S YOUR JUDGMENT, SIR, THAT IT'S GOING TO TAKE YEARS FOR
8 THE EXAMINER, NO MATTER WHO RUNS IT, TO GET TO THE POINT WHERE
9 IT WILL BE COMPETITIVE WITH THE CHRONICLE?
10 A. THAT'S CORRECT.
11 Q. AND DURING THAT INTERIM PERIOD, IT'S GOING TO TAKE A LOT
12 MORE THAN $50 MILLION TO SUPPORT THAT EFFORT; ISN'T THAT FAIR
13 TO SAY?
14 A. YES.
15 Q. AND THE REVENUES ARE GOING TO BE NEAR ZERO INITIALLY;
16 ISN'T THAT FAIR TO SAY?
17 A. CERTAINLY THE ADVERTISING REVENUES AND CIRCULATION
18 REVENUES MAY BE MORE THAN ZERO.
19 Q. HOW MUCH MORE THAN ZERO? DO YOU HAVE AN ESTIMATE?
20 A. NO.
21 Q. FLAHERTY THOUGHT THE AD REVENUES WOULD BE NEAR ZERO;
22 DIDN'T HE?
23 A. I'D HAVE TO REFER TO HIS MEMOS, BUT I THINK HE FELT THAT
24 THERE WOULDN'T BE VERY MUCH ADVERTISING REVENUE.
25 Q. HE WAS VERY SKEPTICAL OF THE BEIHOFF NUMBERS; WAS HE NOT?
1335
WEAVER - CROSS / LINDSTROM
1 A. YES, HE WAS. THAT'S CORRECT.
2 Q. AND YOU WERE SKEPTICAL TOO; RIGHT?
3 A. YES.
4 Q. NOW, IN YOUR JUDGMENT IT'S GOING TO TAKE THREE TO FIVE
5 YEARS FOR THE EXAMINER TO BECOME COMPETITIVE WITH THE
6 CHRONICLE; IS THAT FAIR TO SAY?
7 A. YES.
8 Q. AND DURING THAT PERIOD, INEVITABLY THERE'S GOING TO BE A
9 SHORTFALL BETWEEN REVENUE AND THE EXPENSES ASSOCIATED WITH
10 PUTTING OUT A PAPER THAT COULD BE COMPETITIVE; RIGHT?
11 A. YES.
12 Q. AND IN YOUR JUDGMENT THAT SHORTFALL IS $50 MILLION?
13 A. UP TO $50 MILLION, YES.
14 Q. OKAY. NOW, THAT SUBSIDY IS ONLY TO GET YOU TO BREAK EVEN;
15 RIGHT?
16 A. YES.
17 Q. IT DOESN'T INCLUDE ANY PROFIT?
18 A. THAT'S CORRECT.
19 Q. AND IT DOESN'T INCLUDE ANY RETURN ON INVESTMENT OR
20 ANYTHING ELSE THAT MIGHT BE AFTER PROFIT; IS THAT FAIR TO SAY?
21 A. YES.
22 Q. AND WHEN WE GET TO THE END OF THE SUBSIDY PERIOD, THREE
23 YEARS IN YOUR DECLARATION, THERE'S NO GUARANTEE, IS THERE, THAT
24 THE PAPER WILL BE PROFITABLE?
25 A. THAT'S CORRECT.
1336
WEAVER - CROSS / LINDSTROM
1 Q. AND, IN FACT, THE PAPER THAT YOU MODELED FOR MR. REILLY
2 WAS SHOWN TO BE NOT PROFITABLE AFTER THREE YEARS; ISN'T THAT
3 RIGHT?
4 A. THAT MODEL SHOWS MAKING A LOSS, YES.
5 Q. AND THAT'S P-46 AND I THINK YOU'VE TOLD US THAT THE
6 INITIAL MODEL WAS FOUND ON BATES STAMP PAGE 36.
7 YOU'VE GOT TWO CASES HERE, OPTIMISTIC AND REALISTIC.
8 AND YOU PERSONALLY DIDN'T VIEW THAT THE OPTIMISTIC CASE WAS
9 ACHIEVABLE; DID YOU?
10 A. THAT'S CORRECT.
11 Q. AND SO YOU WERE LOOKING AT REALISTIC AND A PROJECTED LOSS
12 AFTER THREE YEARS WAS STILL NEARLY $20 MILLION; RIGHT?
13 A. YES.
14 Q. AND AT SOME POINT IN TIME YOU MODELED A SCALED-BACK
15 VERSION OF THE PAPER THAT INVOLVED LESS COST TO PUT IT OUT. DO
16 YOU RECALL THAT TESTIMONY?
17 A. YES.
18 Q. AND THAT MODEL IS SHOWN ON PAGE 31, RIGHT, OF EXHIBIT
19 P-46?
20 A. YES.
21 Q. AND NOW EVEN THOUGH YOU'RE SPENDING LESS, LOW 40'S,
22 COMPARED TO MID-50'S; RIGHT?
23 A. YES.
24 Q. YOU'RE LOSING MORE, ISN'T THAT TRUE, IN THIS MODEL?
25 A. (WITNESS EXAMINES DOCUMENT.) YES.
1337
WEAVER - CROSS / LINDSTROM
1 Q. SO IN THE OPTIMISTIC CASE, YOU'RE NOW LOSING ALMOST
2 $11 MILLION; ISN'T THAT CORRECT?
3 A. YES.
4 Q. AND ALMOST 20 IN THE REALISTIC CASE?
5 A. YES.
6 Q. NOW, DID YOU EVER SUGGEST TO MR. REILLY THAT YOU DIDN'T
7 THINK THIS PAPER COULD BE MADE TO BE PROFITABLE?
8 A. NO.
9 Q. WELL, THESE NUMBERS AFTER THREE YEARS HARDLY LOOK LIKE A
10 FINANCIAL HOME RUN; DO THEY?
11 A. THAT'S CORRECT.
12 Q. SO WHERE WAS THE HOME RUN GOING TO COME FROM IF NOT FROM
13 THE OPERATION OF THE EXAMINER?
14 A. I HAVEN'T SPOKEN TO A HOME RUN.
15 Q. WELL, YOU WERE AWARE -- YOU HEARD MR. INGRAM'S TESTIMONY
16 YESTERDAY IN COURT ABOUT THE LUNCHEON THAT HE HAD WITH
17 MR. REILLY AND MR. REILLY'S GOALS AND MOTIVATIONS AS THEY WERE
18 DESCRIBED TO HIM; DIDN'T YOU?
19 A. YES.
20 Q. OKAY. AND LET'S PUT BEFORE YOU EXHIBIT E-88. IT MAY NOT
21 BE IN YOUR NOTEBOOK. IN FACT, I THINK IT'S NOT. THIS IS IN
22 EVIDENCE.
23 NOW, MR. INGRAM AND YOU CONSULTED REGULARLY DURING
24 THE COURSE OF THIS ENGAGEMENT; ISN'T THAT RIGHT?
25 A. WE SPOKE REGULARLY. IS THAT WHAT YOU'RE SAYING?
1338
WEAVER - CROSS / LINDSTROM
1 Q. YES.
2 A. YES.
3 Q. AND FROM TIME TO TIME HE WOULD APPRISE YOU ON
4 CONVERSATIONS HE'D HAD WITH MR. REILLY; RIGHT?
5 A. THAT'S CORRECT.
6 Q. AND IF YOU HAD A CONVERSATION WITH MR. REILLY, YOU'D DO
7 THE SAME FOR MR. INGRAM; RIGHT?
8 A. YES.
9 Q. AND FOR MR. FLAHERTY WHEN HE WAS INVOLVED?
10 A. YES.
11 Q. AND THE IDEA WAS YOU ALL WANTED TO BE ON THE SAME PAGE;
12 RIGHT?
13 A. YES.
14 Q. NOW, YOU BECAME AWARE, DID YOU NOT, THAT CLINT,
15 MR. REILLY, WANTED TO GET THE EXAMINER AT LOW RISK?
16 A. YES.
17 Q. OKAY. AND YOU ALSO BECAME AWARE THAT HE WANTED ANOTHER
18 ASSET FROM HEARST; RIGHT?
19 THE COURT: WHAT EXHIBIT NUMBER IS THIS?
20 MR. LINDSTROM: E-88, YOUR HONOR. SO THAT WOULD BE
21 EXIN 88.
22 THE COURT: OH, I'M SORRY.
23 MR. LINDSTROM: I'M SORRY, YOUR HONOR.
24 THE COURT: ALL RIGHT.
25 THE WITNESS: YES. IF YOU'LL REMEMBER, THE OFFERING
1339
WEAVER - CROSS / LINDSTROM
1 MEMORANDUM SUGGESTED THAT POTENTIAL BUYERS COME BACK WITH
2 WHATEVER THEY FELT WAS REASONABLE OR WHATEVER THEY WERE
3 INTERESTED IN TAKING OVER.
4 BY MR. LINDSTROM:
5 Q. EXACTLY. WHAT WAS BEING OFFERED IN THE VERONIS AND SUHLER
6 OFFERING MEMORANDUM WAS THE ARMY STREET PRINT FACILITY; RIGHT?
7 A. YES.
8 Q. HEARST WAS NOT OFFERING THIS CHOICE REAL ESTATE ON MARKET
9 STREET AT THAT POINT IN TIME; WAS IT?
10 A. I'D HAVE TO READ THE OFFERING MEMORANDUM TO KNOW WHETHER
11 IN FACT IT STATED, AS MR. ASHER DID, THAT THE INTENT WAS TO
12 SOLICIT BIDS ANY WAY -- IN ANY MANNER IN WHICH YOU WANTED TO.
13 Q. LET ME REPHRASE THE QUESTION. I'M NOT ASKING YOU ABOUT
14 FLEXIBILITY ON THE PART OF HEARST. WE'RE GOING TO COME TALK
15 ABOUT THAT IN A MINUTE.
16 A. OKAY.
17 Q. WHAT WAS PROPOSED IN THE VERONIS SUHLER MEMORANDUM WAS THE
18 ARMY STREET FACILITY; CORRECT?
19 A. THE ARMY STREET FACILITY WAS OFFERED UP IN THE VERONIS
20 SUHLER MEMORANDUM.
21 Q. AND WHERE IS THE ARMY STREET FACILITY LOCATED?
22 A. I HAVEN'T SEEN IT. I WOULD ASSUME IT'S ON THE BAY SIDE OF
23 THE 101 ON ARMY STREET.
24 Q. WELL, IN YOUR JUDGMENT WOULD IT HAVE THE SAME REAL ESTATE
25 VALUE AS A MARKET STREET OFFICE BUILDING AND GARAGE?
1340
WEAVER - CROSS / LINDSTROM
1 A. I DON'T CLAIM TO BE AN EXPERT OR EVEN KNOWLEDGEABLE. IF
2 YOU'D LIKE -- IF YOU'D LIKE MY OPINION, I'LL GIVE IT TO YOU,
3 BUT IT WOULD BE AS NOT AN EXPERT AND NOT KNOWLEDGEABLE.
4 Q. AND MR. REILLY DIDN'T NEED YOUR HELP TO EVALUATE REAL
5 ESTATE; DID HE?
6 A. THAT'S CORRECT.
7 Q. AND MR. REILLY SAID THAT HE WANTED TO TALK ABOUT TRYING
8 FOR A MARKET STREET OFFICE BUILDING AND GARAGE. DO YOU KNOW
9 WHY?
10 A. MY UNDERSTANDING WAS THAT THAT GOES TO THE QUESTION OF LOW
11 RISK. THAT IF HE INVESTED MONEY AND THE EXAMINER DIDN'T WORK
12 OUT, THAT HE WOULD REDUCE HIS RISK BECAUSE HE FELT HE COULD
13 DEVELOP PROPERTY.
14 Q. SO IF THE PAPER FAILED, THEN MR. REILLY WOULD END UP WITH
15 THE REAL ESTATE; WOULDN'T HE?
16 A. YES.
17 Q. BUT HE DIDN'T WANT THE REAL ESTATE ON ARMY STREET; DID HE?
18 A. HE DIDN'T WANT THE ARMY STREET FACILITY. WE RECOMMENDED
19 AGAINST THE ARMY STREET FACILITY.
20 Q. OKAY. LET'S TAKE A LOOK AT YOUR VERY FIRST REPORT. WE
21 SAW THIS EARLIER WITH MR. INGRAM. THIS IS PLAINTIFF'S 23,
22 H-1024 IN EVIDENCE, DUPLICATES OF THE SAME DOCUMENT.
23 THE FIRST PAGE, JUST TO FAMILIARIZE YOURSELF WITH
24 IT, YOU HAVE IT IN THE NOTEBOOK --
25 A. WHAT'S THE NUMBER, THE REFERENCE?
1341
WEAVER - CROSS / LINDSTROM
1 Q. IT'S -- I THINK IN YOUR NOTEBOOK IT'S H-1024.
2 A. 1024. (WITNESS EXAMINES DOCUMENT.)
3 Q. BEFORE I CONTINUE WITH THIS DOCUMENT, YOU JUST MENTIONED
4 SOMETHING THAT CAUGHT MY ATTENTION. YOU SAID THAT IF
5 MR. REILLY INVESTED MONEY, THEN HE COULD RECOUP IT, OR
6 SOMETHING ALONG THAT LINE. DO YOU RECALL THAT TESTIMONY?
7 A. YES.
8 Q. ISN'T IT TRUE THAT MR. REILLY TOLD YOU HIS GOAL WAS NOT TO
9 INVEST ANY OF HIS OWN MONEY IN THIS PAPER?
10 A. HE MADE THAT STATEMENT AND HE MADE OTHER STATEMENTS THAT
11 WOULD CONTRADICT THAT STATEMENT.
12 Q. NOW, RETURNING TO YOUR FIRST REPORT, ONE OF THE VERY FIRST
13 THINGS THAT YOU SUGGEST TO MR. REILLY THAT YOU WANT IN ORDER TO
14 DO YOUR CONSULTING WORK IS HERE UNDER THE HEADING OF
15 "INFORMATION REQUEST." DO YOU SEE THAT?
16 A. YES.
17 Q. AND I'M RIGHT, AREN'T I, THAT YOU WERE CONVEYING THIS
18 INFORMATION TO HIM, THE THREE OF YOU, SO THAT HE COULD GET FOR
19 YOU THE INFORMATION THAT YOU NEEDED FROM HEARST IN ORDER TO
20 EVALUATE THIS POSSIBLE ACQUISITION?
21 A. YES.
22 Q. OKAY. AND, NUMBER ONE, "CURRENT BUILDING PLANS FOR 110
23 FIFTH STREET AND BRANNAN STREET GARAGE." DO YOU SEE THAT?
24 A. YES.
25 Q. NOW, THE REASON YOU NEEDED THAT INFORMATION WAS HERETOFORE
1342
WEAVER - CROSS / LINDSTROM
1 IT HADN'T BEEN OFFERED BY HEARST; ISN'T THAT RIGHT?
2 A. I DON'T KNOW THAT IT HAD OR HAD NOT BEEN OFFERED BY
3 HEARST.
4 Q. AND YOU ALSO WANTED CURRENT SITE PLANS FOR BRANNAN STREET
5 PROPERTY, 110 FIFTH PLOT AND ALL PLOTS TO THE SOUTH OF 110
6 FIFTH SITE. DO YOU SEE THAT?
7 A. YES.
8 Q. NOW, WHAT IS A PLOT?
9 A. I DON'T KNOW WHAT A PLOT IS IN THESE TERMS.
10 Q. WELL, WHAT'S A SITE PLAN?
11 A. MY UNDERSTANDING IS THE SITE PLAN WOULD GIVE YOU A LAYOUT
12 OF THE BUILDING -- THE BUILDINGS -- THE PROPERTY AND THE
13 BUILDING ON THAT PROPERTY.
14 Q. ALL PLOTS TO THE SOUTH OF 110 FIFTH SITE, WHAT'S THAT
15 ABOUT?
16 A. I DON'T KNOW THE OWNERSHIP OR THE LAYOUT IN DETAIL OF
17 EITHER BRANNAN STREET OR THE 110 FIFTH STREET.
18 Q. NOW, IF WE TURN TO THE NEXT PAGE, YOU SUMMARIZE CERTAIN
19 KEY DEAL POINTS FOR MR. REILLY. DO YOU SEE THAT?
20 A. YES.
21 Q. NUMBER ONE IS, "BUYER WILL NOT ACQUIRE ARMY STREET"; ISN'T
22 THAT RIGHT?
23 A. YES.
24 Q. OKAY. NOW, AT ARMY STREET THERE WAS ALREADY A PRESS
25 PRINTING FACILITY IN PLACE; ISN'T THAT RIGHT?
1343
WEAVER - CROSS / LINDSTROM
1 A. YES.
2 Q. BUT THERE WASN'T ONE IN PLACE AT 110 FIFTH STREET; WAS
3 THERE?
4 A. THAT'S CORRECT.
5 Q. AND THERE WASN'T ONE AT BRANNAN STREET EITHER?
6 A. THAT'S CORRECT.
7 Q. SO THOSE FACILITIES WOULD HAVE TO BE CONVERTED FROM THEIR
8 CURRENT USE TO A NEW USE; IS THAT RIGHT?
9 A. YES.
10 Q. BUT YOU STILL WANTED THEM; RIGHT?
11 A. YES.
12 Q. "BUYER WILL REQUIRE 110 FIFTH STREET AND ITS ADJACENT LOT
13 TO THE SOUTH PLUS THE BRANNAN STREET SITE." WAS THAT A KEY
14 DEAL POINT IN THE JUDGMENT OF THE THREE OF YOU?
15 A. THAT'S WHAT IT SAYS HERE.
16 Q. AND THAT'S BECAUSE IF THE PAPER FAILED, AS EVERYONE KNEW
17 IT WOULD, MR. REILLY WOULD END UP WITH THE REAL ESTATE AT 110
18 FIFTH STREET AND ITS ADJACENT LOT TO THE SOUTH PLUS THE BRANNAN
19 STREET SITE; ISN'T THAT CORRECT, SIR?
20 A. I WOULD DISAGREE THAT EVERYONE KNEW IT WOULD FAIL.
21 Q. BUT YOU'D AGREE IF IT DID FAIL, HE'D END UP WITH THAT REAL
22 ESTATE; ISN'T THAT TRUE?
23 A. IF THE AGREEMENT INCLUDED THAT REAL ESTATE, HE WOULD END
24 UP WITH IT, YES.
25 Q. AND THE PAPER THAT YOU MODELED FOR HIM WAS LOSING MONEY IN
1344
WEAVER - CROSS / HOCKETT
1 YEAR THREE; ISN'T THAT RIGHT?
2 A. YES.
3 MR. LINDSTROM: THANK YOU. I HAVE NO FURTHER
4 QUESTIONS, YOUR HONOR.
5 THE COURT: VERY WELL. MR. HOCKETT?
6 CROSS-EXAMINATION
7 BY MR. HOCKETT:
8 Q. GOOD MORNING, MR. WEAVER.
9 A. GOOD MORNING.
10 Q. YOU SPENT A GOOD DEAL OF TIME THIS MORNING WITH
11 MR. LINDSTROM TALKING ABOUT THE ECONOMICS OF THE EXAMINER AS IT
12 EXISTS CURRENTLY, AND I WANT TO FOCUS ON THE WORK YOU DID
13 RELATING TO THE EXAMINER AFTER HEARST DIVESTS IT.
14 NOW, WITH RESPECT TO YOUR DECLARATION, WHICH IS
15 PLAINTIFF'S EXHIBIT 60 AND ALREADY IN EVIDENCE, I BELIEVE
16 YOU'VE ALREADY TESTIFIED THAT YOU WERE PART OF THE GROUP THAT
17 CONVENED ON MARCH 25TH TO PREPARE YOUR DECLARATIONS AND
18 COORDINATE YOUR EFFORTS IN SUPPORT OF MR. REILLY'S CASE; IS
19 THAT CORRECT?
20 A. TO PREPARE OUR DECLARATIONS, YES.
21 Q. AND THE GROUP INCLUDED YOU AND MR. PAGE, MR. OSBORN,
22 MR. INGRAM; CORRECT?
23 A. YES.
24 Q. AND IT ALSO INCLUDED MR. ALIOTO AND MR. REILLY AND OTHER
25 ATTORNEYS FOR MR. REILLY; CORRECT?
1345
WEAVER - CROSS / HOCKETT
1 A. YES.
2 Q. AND IN YOUR DISCUSSIONS REGARDING THE APPROPRIATE ANNUAL
3 SUBSIDY FOR A BUYER OF THE EXAMINER, YOU RECALL MR. ALIOTO
4 SAYING IN SUM OR SUBSTANCE, "HOW DO PEOPLE FEEL ABOUT
5 $50 MILLION"; CORRECT?
6 A. THAT'S IN MY DEPOSITION, YES.
7 Q. AND WHEN MR. ALIOTO MADE THE STATEMENT, ALL OF THE EXPERTS
8 WERE ASSEMBLED TOGETHER IN ONE ROOM WITH HIM; CORRECT?
9 A. THAT'S CORRECT.
10 Q. AND YOU DON'T REMEMBER ANYTHING SPECIFICALLY THAT ANYBODY
11 SAID IN RESPONSE TO THAT SUGGESTION; DO YOU?
12 A. NO. I THINK THERE WAS A GENERAL AGREEMENT THAT HIS
13 SUMMARY OF THE DISCUSSION THAT HAD TAKEN PLACE EARLIER THAT DAY
14 WAS CORRECT.
15 Q. AND RIGHT AFTER THE MEETING, EVERY ONE OF THE EXPERTS
16 THERE WHO ATTENDED, INCLUDING YOU, SIGNED DECLARATIONS WITH A
17 50 MILLION-DOLLAR SUBSIDY INCLUDED IN THEM; CORRECT?
18 A. YES.
19 Q. NOW, IN YOUR PARAGRAPH 4 YOU ACTUALLY DID CHANGE A FEW
20 WORDS REGARDING THE SUBSIDY THAT YOU CLAIM IS NECESSARY TO
21 SUPPORT THE NEW EXAMINER.
22 AND, BY THE WAY, YOUR VISION OF A NEW EXAMINER THAT
23 YOU'RE DISCUSSING IN YOUR DECLARATION IS AS A MAJOR
24 METROPOLITAN DAILY NEWSPAPER; CORRECT?
25 A. YES.
1346
WEAVER - CROSS / HOCKETT
1 Q. YOU SAY HERE THAT IT WOULD BE NECESSARY FOR A BUYER TO
2 RECEIVE A SUBSIDY OF UP TO $50 MILLION FOR THREE YEARS AS
3 OPPOSED TO A MINIMUM SUBSIDY OF 50 FOR FIVE YEARS; CORRECT?
4 A. I SAY THAT, UP TO $50 MILLION FOR THREE YEARS, YES.
5 Q. AND THAT MEANS A MAXIMUM OF $50 MILLION A YEAR FOR THREE
6 YEARS; CORRECT?
7 A. YES.
8 Q. AND ONE OF THE REASONS YOU SAY "UP TO" IS THAT THE
9 THREE-YEAR SUBSIDY OF UP TO $50 MILLION THAT YOU REFER TO
10 ASSUMES THAT THE BUYER RECEIVES NO OFFSETTING REVENUE FROM THE
11 OPERATIONS OF THE NEW EXAMINER; CORRECT?
12 A. THAT'S NOT CORRECT.
13 Q. DID YOU ASSUME, IN CALCULATING YOUR SUBSIDY, THAT THE
14 BUYER WOULD RECEIVE REVENUE?
15 A. IN MAKING THE STATEMENT OF UP TO $50 MILLION, THERE'S NO
16 REASON TO -- I DIDN'T CONCLUDE THAT THERE WOULD BE NO REVENUE
17 SHARED FOR THOSE THREE YEARS.
18 Q. NOW, YOU'RE NOT A REVENUE EXPERT; CORRECT?
19 A. THAT'S TRUE.
20 Q. AND YOU DIDN'T CALCULATE ANYTHING WITH REGARD TO WHAT
21 REVENUE A BUYER WOULD GET, DID YOU, YOURSELF?
22 A. I DIDN'T MAKE ANY ESTIMATES OF WHAT I THOUGHT A BUYER
23 WOULD RECEIVE IN ADVERTISING REVENUE OR CIRCULATION REVENUE.
24 Q. AND DO YOU KNOW WHETHER THE EXIN TRANSACTION WITH HEARST
25 CONTEMPLATES THAT EXIN GETS TO RECEIVE REVENUE THE NEWSPAPER
1347
WEAVER - CROSS / HOCKETT
1 GENERATES DURING THE PERIOD IN WHICH IT RECEIVES FINANCIAL
2 SUPPORT?
3 A. I DON'T KNOW.
4 Q. ACCORDING TO YOUR DECLARATION, ALSO IN PARAGRAPH 4, A
5 BUYER OF THE EXAMINER WOULD NEED A 12- TO 18-MONTH TRANSITION
6 PERIOD BEFORE IT COULD PRODUCE AN ECONOMICALLY-VIABLE PAPER; IS
7 THAT CORRECT?
8 A. YES.
9 Q. AND YOU STAND BEHIND THAT?
10 A. YES.
11 Q. YOU ALSO SAY THAT YOU THINK THE SUBSIDY WOULD BE NECESSARY
12 FOR THREE YEARS; CORRECT?
13 A. YES.
14 Q. AND YOU HAVE TESTIFIED IN YOUR DEPOSITION THAT YOU
15 BELIEVE, AND THESE ARE YOUR WORDS, THAT IT IS A TOSS UP WHETHER
16 AFTER THE THREE YEARS OF SUBSIDY THE STAND-ALONE EXAMINER THAT
17 YOU ENVISION WOULD BE EARNING A PROFIT; CORRECT?
18 A. YES.
19 Q. LET ME SHOW YOU THE COST CALCULATIONS THAT YOU DID WHICH
20 HAVE BEEN RECEIVED INTO EVIDENCE AS PLAINTIFF'S EXHIBIT 166.
21 YOU PREPARED THESE; CORRECT?
22 A. YES.
23 Q. AND THE REVENUE NUMBERS COME FROM YOUR ASSUMPTIONS PLUS
24 SOME INFORMATION FROM MR. BEIHOFF WHO IS A REVENUE EXPERT THAT
25 WORKS AT THE PITTSBURGH POST GAZETTE; CORRECT?
1348
WEAVER - CROSS / HOCKETT
1 A. THAT'S INCORRECT.
2 Q. IN WHAT RESPECT IS IT INCORRECT?
3 A. THIS DOESN'T REFLECT ANY INPUT FROM MR. BEIHOFF.
4 Q. DOES IT USE ASSUMPTIONS THAT WERE PROVIDED BY MR. BEIHOFF?
5 A. NO.
6 Q. PLEASE TURN TO YOUR DEPOSITION AT PAGE 70, AND I WOULD
7 LIKE TO READ FROM LINE 19 ON PAGE 70 TO LINE 1 ON PAGE 71.
8 A. (WITNESS EXAMINES DOCUMENT.)
9 Q. "Q. ALL RIGHT. AND WHERE DID THE
10 REVENUE SIDE OF THE EQUATION COME FROM?
11 "A. WE USED DIFFERENT REVENUE ASSUMPTIONS.
12 "Q. WHO PROVIDED THOSE TO YOU?
13 "A. WE USED SOME ASSUMPTIONS THAT WERE
14 PROVIDED BY MR. BEIHOFF AND WE ALSO BACKED INTO
15 SOME REVENUE ASSUMPTIONS BASED UPON LINEAGE
16 RATES AND THE SIZE OF THE PAPER."
17 WERE YOU ASKED THOSE QUESTIONS AND DID YOU GIVE
18 THOSE RESPONSES?
19 A. YES.
20 Q. NOW, IF YOU LOOK AT PLAINTIFF'S EXHIBIT 166 -- AND, BY THE
21 WAY, A VERSION OF THIS WITH THE SAME FIGURES WAS GIVEN TO
22 MR. REILLY IN FEBRUARY; CORRECT?
23 A. YES.
24 Q. THIS DOCUMENT ON THE SCREEN?
25 A. YES.
1349
WEAVER - CROSS / HOCKETT
1 Q. THE COLUMN ENTITLED "REALISTIC" SHOWS A LOSS IN YEAR THREE
2 OF ABOUT $18 MILLION; CORRECT?
3 A. (WITNESS EXAMINES DOCUMENT.) YES.
4 Q. AND $18 MILLION IS LESS THAN $25 MILLION, CORRECT, THE
5 AMOUNT OF THE --
6 A. THAT'S CORRECT.
7 Q. -- FINANCIAL SUPPORT THAT HEARST IS PROVIDING THE FANGS?
8 A. YES.
9 Q. AND THE COLUMN ENTITLED "OPTIMISTIC" SHOWS AN OPERATING
10 PROFIT IN YEAR THREE; CORRECT?
11 A. YES.
12 Q. NOW, YOU KNOW NOTHING OTHER THAN WHAT YOU READ IN THE
13 PAPER ABOUT THE FANG FAMILY'S DEAL FOR ACQUIRING THE EXAMINER;
14 IS THAT CORRECT?
15 A. THAT'S CORRECT.
16 Q. AND YOU KNOW NOTHING ABOUT HOW THEY INTEND TO OPERATE THE
17 NEW EXAMINER; IS THAT CORRECT?
18 A. THAT'S CORRECT.
19 Q. AND YOU DON'T KNOW WHAT SORT OF PAPER THEY HAVE IN MIND;
20 CORRECT?
21 A. THAT'S CORRECT.
22 Q. BUT YOU DO KNOW THAT THE FANG FAMILY HAS ALREADY EXISTING
23 NEWSPAPER OPERATIONS IN BOTH SAN FRANCISCO AND SAN MATEO
24 COUNTIES; DO YOU NOT?
25 A. YES, I DO KNOW THAT.
1350
WEAVER - CROSS / HOCKETT
1 Q. AND YOU DO KNOW THAT THEY WOULD HAVE THE BENEFIT OF
2 SYNERGIES IN ADVERTISING REVENUE AND COST SAVINGS FROM COST
3 SHARING WITH THEIR OTHER OPERATIONS; CORRECT?
4 A. I BELIEVE THAT SYNERGIES DO EXIST THERE, YES.
5 Q. LET'S TAKE A LOOK AT YOUR NOTES, A PAGE OF YOUR NOTES,
6 WHICH IS PART OF CHRONICLE EXHIBIT C-311, AND SPECIFICALLY PAGE
7 446.
8 A. (WITNESS EXAMINES DOCUMENT.)
9 Q. THESE ARE YOUR NOTES; ARE THEY NOT?
10 A. THAT'S CORRECT.
11 Q. AND THEY SAY:
12 "FANGS PROVIDE
13 "1) ALREADY EXISTING NEWSPAPER OPERATIONS
14 IN SF-SAN MATEO COUNTIES," AND,
15 "2) SYNERGIES IN ADVERTISING REVENUE,
16 ESPECIALLY CLASSIFIED, COST SAVINGS, THROUGH
17 COST SHARING."
18 DO YOU SEE THAT?
19 A. YES.
20 Q. AND THESE NOTES BEAR THE DATE OF MARCH 24TH; CORRECT?
21 A. THAT'S CORRECT.
22 Q. THE DAY BEFORE THE MEETING WITH MR. ALIOTO AND THE OTHER
23 EXPERTS; CORRECT?
24 A. THAT'S CORRECT, YES.
25 Q. AND YOUR DECLARATION, WHICH WAS SIGNED TWO DAYS LATER,
1351
WEAVER - CROSS / HALLING
1 DOES NOT MENTION THE FANGS ALREADY EXISTING NEWSPAPER
2 OPERATIONS OR THE SYNERGIES THEY WOULD ENJOY IN OPERATING THE
3 EXAMINER; DOES IT?
4 A. THAT'S CORRECT.
5 Q. AND NONE OF THE COST CALCULATIONS THAT YOU PERFORMED
6 INCLUDE ANY ALLOWANCE FOR THESE FACTORS; DO THEY?
7 A. I DON'T HAVE ANY INFORMATION ABOUT THE FANGS' OPERATIONS,
8 SO I COULDN'T DO THAT, SO THEY DON'T.
9 MR. HOCKETT: I HAVE NOTHING FURTHER, YOUR HONOR.
10 THE COURT: VERY WELL. MR. HALLING?
11 CROSS-EXAMINATION
12 BY MR. HALLING:
13 Q. MR. WEAVER, YOU ESTIMATED THAT THE AGENCY WOULD SAVE 30 TO
14 $50 MILLION ANNUALLY IF THE EXAMINER WERE CLOSED; ISN'T THAT
15 CORRECT?
16 A. YES, THE NET -- YES.
17 Q. AND THAT WOULD BE NETTING THE LOSS OF REVENUE YOU WOULD
18 EXPECT FROM THE EXAMINER WITH THE COSTS THAT WOULD BE SAVED BY
19 NOT HAVING THE EXAMINER PUBLISHED; IS THAT CORRECT?
20 A. YES. THAT'S ASSUMING THAT YOU DID NOT KEEP ALL OF THOSE
21 EMPLOYEES AND DIDN'T CONTINUE TO INCLUDE -- INCUR THOSE COSTS.
22 Q. TAKE A LOOK, IF YOU WOULD, AT EXHIBIT 1033. I'M NOT SURE
23 IF YOU HAVE IT THERE OR NOT.
24 A. YES, I DO.
25 Q. ALL RIGHT. THIS IS EXHIBIT 1033 IN EVIDENCE. THAT'S YOUR
1352
WEAVER - CROSS / HALLING
1 SIGNATURE ON THE DOCUMENT; IS IT NOT?
2 A. YES.
3 Q. THIS IS A LETTER THAT YOU SENT TO MR. REILLY ON MARCH
4 21ST; IS THAT CORRECT?
5 A. YES.
6 Q. THE FIRST SENTENCE OF THE LETTER READS:
7 "HEARST'S DECISION TO SELL THE EXAMINER TO
8 THE FANGS CERTAINLY DOESN'T SIT WELL WITH US."
9 NOW, IS "US" THE OTHER EXPERTS?
10 A. THAT WOULD BE CERTAINLY INGRAM, AND I DON'T WANT TO SPEAK
11 FOR MR. FLAHERTY.
12 Q. DOES THAT STATEMENT APPLY TO MR. REILLY AS WELL?
13 A. I THINK IT WOULD. I DON'T THINK IT SAT WELL WITH
14 MR. REILLY.
15 Q. TURNING TO THE NEXT PARAGRAPH, IT SAYS:
16 "JOE HAS BEEN TALKING TO A NUMBER OF US
17 ABOUT HELPING WITH THE LAWSUIT."
18 DO YOU SEE THAT?
19 A. YES.
20 Q. NOW, YOU WERE ORIGINALLY CONTACTED I BELIEVE YOU SAID WITH
21 RESPECT TO YOUR CONSULTATION BY A MR. JOSEPH BARLETTA; IS THAT
22 CORRECT?
23 A. YES.
24 Q. IS THAT WHO YOU'RE REFERRING TO IN THIS SENTENCE?
25 A. YES.
1353
WEAVER - CROSS / HALLING
1 Q. NOW, MR. WEAVER, I BELIEVE YOU SAID THAT THE ORANGE COUNTY
2 REGISTER HAD THE SECOND LARGEST AD LINEAGE IN CALIFORNIA; IS
3 THAT RIGHT?
4 A. YES, WHEN I WAS THERE.
5 Q. AND THE ORANGE COUNTY REGISTER IS PART OF THE FREEDOM
6 NEWSPAPER CHAIN; IS THAT CORRECT?
7 A. YES.
8 Q. WAS IT A SUCCESSFUL PAPER WHILE YOU WERE THERE?
9 A. YES.
10 Q. AND YOU REPORTED TO THE PUBLISHER OF THE ORANGE COUNTY
11 REGISTER?
12 A. YES.
13 Q. IN 1993 I BELIEVE YOU SAID YOU LEFT; IS THAT CORRECT?
14 A. I LEFT THE REGISTER, YES.
15 Q. AT THAT TIME THE PUBLISHER OF THE ORANGE COUNTY REGISTER
16 REPORTED TO THE CEO OF FREEDOM NEWSPAPERS, DR. JAMES ROSSE; IS
17 THAT CORRECT?
18 A. YES, IT IS.
19 Q. AND DR. ROSSE IS HEARST'S EXPERT IN THIS CASE, IS THAT
20 CORRECT, AS FAR AS YOU KNOW?
21 A. THAT'S MY UNDERSTANDING. I DON'T KNOW THAT PER SE, BUT
22 THAT'S MY UNDERSTANDING. I'VE SEEN HIM HERE.
23 Q. YOU HAVE A LOT OF RESPECT FOR DR. ROSSE; DON'T YOU?
24 A. I DO, YES.
25 MR. HALLING: NOTHING FURTHER.
1354
WEAVER - REDIRECT / SHULMAN
1 THE COURT: MR. SHULMAN, ANY REDIRECT?
2 MR. SHULMAN: YES, YOUR HONOR. MAY IT PLEASE THE
3 COURT.
4 REDIRECT EXAMINATION
5 BY MR. SHULMAN:
6 Q. LET'S START WITH THE DOCUMENT YOU WERE JUST BEING ASKED
7 ABOUT THAT COUNSEL HAD UP ON THE SCREEN. AND THIS WAS THE
8 LETTER THAT YOU WROTE TO MR. REILLY ON MARCH 21?
9 A. YES.
10 Q. OKAY. THE THIRD PARAGRAPH OF THE LETTER SAYS:
11 "THERE IS NO DOUBT THAT THE FANGS CAN AND
12 WILL PUT OUT A PAPER FOR LESS THAN $25 MILLION
13 PER YEAR IN NET COSTS TO THEMSELVES DURING THE
14 THREE YEARS OF HEARST'S SUBSIDY; CREAM AS MUCH
15 OFF THE TOP FOR THEMSELVES AND THE INDEPENDENT
16 AS THEY CAN, AND THEN EITHER MERGE THE PAPERS OR
17 CLOSE THEIR," QUOTE, "'MONEY-LOSING VENTURE,'"
18 CLOSED QUOTE. "NOT A PRETTY PICTURE FOR THE
19 COMPETITIVE NEWSPAPER SITUATION IN SAN
20 FRANCISCO," END OF QUOTE.
21 DO YOU SEE THAT?
22 A. YES.
23 Q. WERE YOU CONCERNED ABOUT THAT?
24 A. YES.
25 Q. YOU WERE ALSO --
1355
WEAVER - REDIRECT / SHULMAN
1 THE COURT: BEFORE LEAVING THAT, MR. SHULMAN, BEFORE
2 LEAVING THAT SUBJECT, LET ME INQUIRE OF THE WITNESS. WHAT DID
3 YOU MEAN "NOT A PRETTY PICTURE FOR THE COMPETITIVE NEWSPAPER
4 SITUATION IN SAN FRANCISCO"?
5 THE WITNESS: THAT THERE WOULD NOT BE A COMPETITIVE
6 NEWSPAPER TO THE EXTENT THAT THERE IS A SUBSTITUTE NEWSPAPER
7 FOR THE CHRONICLE PUBLISHED UNDER THE FANGS IN THAT EVEN THAT
8 PAPER WOULD PROBABLY CLOSE AND BE LESS COMPETITIVE AFTER THE
9 THREE YEARS.
10 THE COURT: WHAT EFFECT, IN YOUR VIEW, IF YOU HAVE
11 ONE, IS THE SUBSIDY THAT HEARST PROPOSES TO PAY TO THE FANGS,
12 WHAT EFFECT DOES THAT SUBSIDY HAVE ON THE COMPETITIVE SITUATION
13 IN SAN FRANCISCO?
14 THE WITNESS: I WOULD SAY THAT WITHOUT A SUBSIDY,
15 THE FANGS WOULD NOT PRODUCE A DAILY NEWSPAPER IN SAN FRANCISCO.
16 SO THAT WHATEVER DAILY NEWSPAPER THEY PRODUCE IS GOING TO BE
17 MORE COMPETITIVE THAN NOT HAVING A NEWSPAPER, THAT THAT WOULD
18 MAKE IT MORE COMPETITIVE THAN NOT HAVING A SECOND NEWSPAPER.
19 THE COURT: WELL, IF I UNDERSTAND WHAT YOUR
20 TESTIMONY IS AND THE PURPORT OF THIS LETTER, YOU THINK THAT THE
21 FANG VENTURE IS NOT A VIABLE ONE BEYOND THE PERIOD OF THE FIRST
22 SUBSIDY; IS THAT A FAIR STATEMENT?
23 THE WITNESS: NOT TO THE EXTENT YOU'RE SAYING VIABLE
24 IS A MONEY-MAKING OPERATION.
25 THE COURT: ALL RIGHT. VIABLE IN THE SENSE THAT IT
1356
WEAVER - REDIRECT / SHULMAN
1 CANNOT SUSTAIN ITSELF BY BEING A PROFIT-MAKING ENTERPRISE
2 BEYOND THE THREE-YEAR PERIOD OF THE HEARST SUBSIDY. IS THAT
3 YOUR VIEW?
4 THE WITNESS: YES.
5 THE COURT: AND WHAT IS THE EFFECT ON THE
6 COMPETITIVE SITUATION, THE COMPETITIVE NEWSPAPER SITUATION, IN
7 HEARST SUBSIDIZING THE FANG OPERATION FOR A THREE-YEAR PERIOD
8 OF TIME WHEN AT THE END A VIABLE, PROFITABLE, DAILY NEWSPAPER
9 WILL NOT BE THE PRODUCT OF THAT SUBSIDY?
10 THE WITNESS: I GUESS THAT DEPENDS ON WHETHER WE'RE
11 COMPARING IT AGAINST NOT HAVING AN EXAMINER OR HAVING THE
12 EXISTING EXAMINER.
13 THE COURT: I'M ASKING YOU WHAT IS THE EFFECT DURING
14 THE PERIOD OF THE SUBSIDY. DO YOU HAVE AN OPINION? MAYBE YOU
15 DON'T HAVE AN OPINION.
16 THE WITNESS: I THINK A SUBSIDY WILL ALLOW A PERSON
17 TO PUT OUT A BETTER PRODUCT.
18 THE COURT: THAT'S NOT MY QUESTION.
19 THE WITNESS: OKAY.
20 THE COURT: MY QUESTION IS: WHAT IS THE EFFECT ON
21 THE COMPETITIVE NEWSPAPER SITUATION NOT THE EFFECT ON THE
22 FANGS, NOT THE EFFECT ON HEARST, THE EFFECT ON THE MARKET
23 DURING THE PERIOD OF THE SUBSIDY?
24 THE WITNESS: I THINK IT WILL BE LESS COMPETITIVE
25 THAN IT IS TODAY.
1357
WEAVER - REDIRECT / SHULMAN
1 THE COURT: WHY?
2 THE WITNESS: BECAUSE I DO NOT BELIEVE THE PAPER
3 THAT WILL BE PUT OUT FOR THREE YEARS WILL BE AS GOOD A
4 SUBSTITUTE AS THE EXISTING EXAMINER IS FOR THE CHRONICLE. IT
5 WILL NOT, THEREFORE, BE AS COMPETITIVE AS THE EXISTING EXAMINER
6 IS WITH THE CHRONICLE.
7 THE COURT: DO YOU HAVE AN OPINION ABOUT THE EFFECT
8 ON HEARST'S ABILITY TO COMPETE VIS-A-VIS THESE OTHER NEWSPAPERS
9 IN THE BAY AREA THAT YOU'VE MENTIONED?
10 THE WITNESS: HEARST AS THE OWNER OF THE CHRONICLE
11 OR --
12 THE COURT: CORRECT. TO COMPETE VIS-A-VIS THE SAN
13 JOSE MERCURY NEWS, THE CONTRA COSTA TIMES, THE INDEPENDENT
14 JOURNAL, THE SINGLETON GROUP, THE OTHER PAPERS THAT WERE
15 MENTIONED IN THE EXHIBIT THAT COUNSEL HAVE REFERRED TO.
16 THE WITNESS: JUST I WANT --
17 THE COURT: DO YOU HAVE AN OPINION?
18 THE WITNESS: NO.
19 THE COURT: ALL RIGHT, MR. SHULMAN, THANK YOU.
20 BY MR. SHULMAN:
21 Q. MR. WEAVER, YOU WERE ASKED ALSO, SINCE WE'RE -- THIS MAKES
22 REFERENCE TO THE FANGS, THIS PART OF THE LETTER. YOU WERE
23 ASKED ALSO IF YOU WERE AWARE OF THE FANGS' PLANS FOR THE
24 EXAMINER AFTER THEY GET IT. DO YOU RECALL THAT?
25 A. YES.
1358
WEAVER - REDIRECT / SHULMAN
1 Q. OKAY. I WOULD LIKE TO DIRECT YOUR ATTENTION -- WELL, WERE
2 YOU IN COURT WHEN I READ MR. FANG'S DEPOSITION TESTIMONY THAT
3 HE HAS NO BUSINESS PLAN --
4 A. YES.
5 Q. -- FOR THE EXAMINER?
6 A. YES.
7 Q. OKAY. YOU WERE ALSO ASKED ABOUT WHETHER THERE WERE ANY
8 SYNERGIES --
9 A. YES.
10 Q. -- THAT THE FANGS MIGHT BRING IN THE AREA OF ADVERTISING
11 OR CIRCULATION, AND I WANT TO DIRECT YOUR ATTENTION TO
12 TESTIMONY GIVEN BY MR. FANG AT PAGE 155 OF HIS DEPOSITION, LINE
13 7:
14 "Q. OKAY. MR. FANG, I THINK YOU TESTIFIED
15 THIS MORNING THAT IT WAS YOUR DREAM TO OWN A
16 DAILY NEWSPAPER.
17 "A. YES, SIR.
18 "Q. OKAY. WHY DIDN'T YOU JUST MAKE THE
19 INDEPENDENT A DAILY NEWSPAPER?
20 "A. YES, THE INDEPENDENT IS IN A DIFFERENT
21 MARKET THAN THE DAILY NEWSPAPER. IT'S DELIVERED
22 TO EVERY HOME FREE OF CHARGE; AND, AS I SAID
23 BEFORE, NEWSPAPERS ARE ADVERTISING DRIVEN. THE
24 ADVERTISERS OF THE INDEPENDENT LOOK TO ADVERTISE
25 IN A NEWSPAPER THAT REACHES AS MANY HOMES AS
1359
WEAVER - REDIRECT / SHULMAN
1 POSSIBLE. THESE ADVERTISERS ARE ADVERTISERS
2 SUCH AS GROCERY STORES AND DRUGSTORES BECAUSE
3 EVERYBODY NEEDS TO BUY FOOD AND EVERYBODY NEEDS
4 TO BUY SHAMPOO OR ASPIRIN.
5 "DAILY NEWSPAPERS DEPEND ON A DIFFERENT TYPE
6 OF ADVERTISER. THOSE ADVERTISERS ARE LOOKING
7 FOR SUBSCRIBERS. SO IF I TURNED THE INDEPENDENT
8 INTO A SUBSCRIPTION-ONLY VEHICLE, I WOULD LOSE
9 MY CURRENT ADVERTISING ACCOUNTS OR A LOT OF MY
10 CURRENT ADVERTISING ACCOUNTS THAT REACH -- THAT
11 WISH TO REACH A MASS DISTRIBUTION. SO THAT'S
12 WHY I DON'T WANT TO JEOPARDIZE MY OPERATIONS AT
13 THE INDEPENDENT, AND I'M NOT GOING TO HAVE THAT
14 AS A DAILY NEWSPAPER."
15 NOW, DOES THAT -- WHAT DOES THAT INDICATE TO YOU
16 ABOUT WHETHER THERE ARE ANY SYNERGIES?
17 A. I THINK THERE CONTINUE TO BE SYNERGIES BETWEEN A NEWSPAPER
18 OPERATION THAT PROVIDES DAILY NEWSPAPERS AND WEEKLY NEWSPAPERS
19 IN THE SAME MARKETPLACE. WHETHER THEY'RE LARGE OR NOT, NO ONE
20 HAS ASKED ME. WHERE THEY ARE, NO ONE HAS ASKED ME, BUT I
21 BELIEVE THERE ARE SYNERGIES.
22 Q. WELL, DOES THIS INDICATE TO YOU WHETHER THE SYNERGIES ARE
23 LARGE OR SMALL?
24 A. I DON'T BELIEVE THEY'RE GOING TO BE VERY LARGE.
25 Q. LET ME -- YOU WERE ALSO ASKED SOME QUESTIONS ABOUT THE
1360
WEAVER - REDIRECT / SHULMAN
1 REAL ESTATE THAT WAS DISCUSSED IN CONNECTION WITH
2 MR. REILLY'S -- THE PLANS HE PUT TOGETHER CONCERNING THE
3 POSSIBLE ACQUISITION OF THE EXAMINER. DO YOU REMEMBER THAT?
4 A. YES.
5 Q. AND ONE OF THE PIECES OF REAL ESTATE WAS THE 110 FIFTH
6 STREET BUILDING; CORRECT?
7 A. YES.
8 Q. THAT'S THE EXAMINER BUILDING?
9 A. YES.
10 Q. OKAY. NOW, DID YOU UNDERSTAND FROM THE DISCUSSIONS WITH
11 MR. INGRAM AND MR. REILLY THAT THE IDEA WAS THAT THE PRINTING
12 PLANT FOR THE NEWSPAPER WOULD BE REINSTALLED IN THAT BUILDING?
13 A. YES.
14 Q. I WANT TO DIRECT YOUR ATTENTION TO -- SO -- WELL, GOING
15 BACK TO THE 110 FIFTH STREET, ONE OF THE REASONS TO ACQUIRE
16 THAT WAS BECAUSE THAT'S WHERE YOU WOULD ULTIMATELY BE PRINTING
17 THE PAPER; CORRECT?
18 A. YES.
19 Q. ALL RIGHT. NOW I WANT TO DIRECT YOUR ATTENTION TO EXHIBIT
20 345, AND THESE ARE THE NOTES THAT WERE DONE BY MR. COMANOR, DO
21 YOU RECALL -- DR. COMANOR, DO YOU RECALL THAT, AND THAT WERE
22 SENT TO YOU?
23 A. YES.
24 Q. AND I BELIEVE THERE WAS AN IMPLICATION RAISED BY COUNSEL
25 THAT SOMEHOW THESE NOTES OR THIS INFORMATION WAS NOT MADE
1361
WEAVER - REDIRECT / SHULMAN
1 AVAILABLE TO LAWYERS FOR THE CHRONICLE. DO YOU REMEMBER THAT?
2 A. I WOULD INTERPRET IT TO BE -- TO THAT HAVING BEEN SAID,
3 YES.
4 Q. OKAY. NOW, I WANT TO DIRECT YOUR ATTENTION TO THE
5 DEPOSITION OF DR. COMANOR, SOME TESTIMONY HE GAVE WHERE HE WAS
6 ASKED ABOUT THESE VERY NOTES IN HIS DEPOSITION ON THE 25TH OF
7 APRIL. AND THIS IS AT PAGE 83, LINE 17. OKAY, IT SAYS:
8 "Q. LET ME SHOW YOU A DOCUMENT THAT HAS
9 BEEN MARKED AS EXHIBIT 1106 AND IT'S --
10 "A. OH, YEAH.
11 "Q. WHAT IS THIS?
12 "A. WHEN I WAS PLAYING AROUND WITH THIS,
13 THE PROSPECTS FOR THE EXAMINER AND THE
14 CHRONICLE, I PULLED TOGETHER SOME NUMBERS FROM
15 VARIOUS PLACES AND I SENT IT TO MIKE WEAVER
16 ASKING IF HE HAD ANY COMMENTS ON IT. I PLAYED
17 AROUND, I LOOKED AT IT. AS YOU CAN SEE, I ENDED
18 UP NOT -- THIS WAS A DRY HOLE, AS THEY SAY.
19 IT'S NOT SOMETHING THAT I USED IN FORMULATING MY
20 OPINIONS. I DID LOOK AT IT. THIS IS MY
21 HANDWRITING AND I DID PULL THOSE NUMBERS
22 TOGETHER, BUT I DIDN'T KNOW WHAT CONCLUSIONS I
23 SHOULD DRAW FROM IT. IT'S BASED ON SOME
24 ARBITRARY NOTIONS AND SO I DID NOT RELY ON THE
25 ANALYSIS THAT'S CONTAINED IN THESE TWO PAGES IN
1362
WEAVER - REDIRECT / SHULMAN
1 FORMING MY OPINIONS, BUT IT WAS A PRELIMINARY
2 EXERCISE THAT I DID ENGAGE IN."
3 NOW, IS THAT CONSISTENT WITH YOUR DISCUSSIONS WITH
4 DR. COMANOR?
5 A. YES.
6 Q. ALL RIGHT. YOU WERE ALSO ASKED SOME QUESTIONS ABOUT
7 EXHIBIT 311, AND LET ME SHOW YOU PAGE 452 OF THAT.
8 AND I THINK YOU SAID THAT -- TELL ME WHEN YOU'RE
9 WITH ME, WHEN YOU'VE GOT THAT.
10 A. (WITNESS EXAMINES DOCUMENT.) YES.
11 Q. I THINK YOU SAID THAT THIS WAS AN EFFORT BY YOU TO VALUE
12 THE CHRONICLE AS A STAND-ALONE BUSINESS. DO YOU RECALL THAT?
13 A. YES.
14 Q. OKAY. CAN YOU EXPLAIN WHAT YOU DID?
15 A. WHAT I DID WAS I LOOKED AT THE PROFIT AND LOSS STATEMENT
16 FOR THE SAN FRANCISCO NEWSPAPER AGENCY, REMOVED THE COSTS THAT
17 WERE ASSOCIATED WITH THE EXAMINER BASED UPON THE INFORMATION I
18 GOT OUT OF THE VERONIS AND SUHLER OFFERING MEMORANDUM, MADE AN
19 ASSUMPTION ABOUT THE REDUCTION IN REVENUE AND CAME UP WITH A
20 CONCLUSION ABOUT WHERE THAT WOULD LEAD ME IN TERMS OF THE
21 PROFITABILITY OF A STAND-ALONE CHRONICLE.
22 Q. OKAY. DID YOU, IN THIS EXERCISE, REACH A VALUE FOR THE
23 STAND-ALONE CHRONICLE? WITHOUT TELLING US WHAT IT IS AT THE
24 MOMENT, DID YOU GET THERE?
25 A. A RANGE, YES.
1363
WEAVER - REDIRECT / SHULMAN
1 Q. OKAY. CAN YOU EXPLAIN WHAT THAT VALUE WAS AND HOW YOU GOT
2 THERE?
3 MR. LINDSTROM: YOUR HONOR, I OBJECT ON THE GROUNDS
4 IT EXCEEDS THE SCOPE.
5 MR. SHULMAN: HE WAS ASKED --
6 THE COURT: OVERRULED.
7 BY MR. SHULMAN:
8 Q. GO AHEAD.
9 A. WOULD YOU REPEAT THE QUESTION, PLEASE?
10 Q. YES. CAN YOU EXPLAIN THE RANGE OF VALUES THAT YOU ARRIVED
11 AT AS THE VALUE OF THE STAND-ALONE -- I'M SORRY, THE VALUE OF
12 THE STAND-ALONE CHRONICLE --
13 A. AT THIS POINT IN TIME IF YOU LOOK AT --
14 Q. -- AND HOW YOU GOT THERE?
15 A. -- IF YOU LOOK AT THE LEFT-HAND SIDE, THE LOWER LEFT-HAND
16 SIDE OF THIS ANALYSIS, AS I EXPLAINED, STARTING WITH THE
17 125,000, THAT WAS A CALCULATION OF THE POTENTIAL GROSS EXCESS,
18 AS IT'S CALLED. FROM THAT I AT THIS POINT IN TIME SUBTRACTED
19 $40 MILLION FOR CHRONICLE EXPENSES. THOSE WOULD BE EDITORIAL
20 AND OTHER EXPENSES. CAME UP WITH AN EBITDA NUMBER OF
21 85 MILLION. THEN I MULTIPLIED THAT TIMES 8, CAME UP WITH
22 680 MILLION. AND THEN I MULTIPLIED THE 85 TIMES 12 TO COME UP
23 WITH 1 BILLION AND $20 MILLION AS A RANGE TO BEGIN TO THINK
24 ABOUT THE VALUE OF THE CHRONICLE BASED UPON AN EBITDA OF
25 $85 MILLION.
1364
WEAVER - REDIRECT / SHULMAN
1 BELOW THAT I LOOKED AT A REVENUE FIGURE OF
2 $350 MILLION AND TOOK A RANGE FIRST OF TWO TIMES REVENUE AS A
3 VALUATION FOR $700 MILLION. AND THEN UNDERNEATH THAT THERE IS
4 "TO $1.5 BILLION" AND THAT'S THREE TIMES REVENUE.
5 AND THEN BELOW THAT, JUST AS A CHECK, I SAID, WHAT'S
6 THE REVENUE PER SUBSCRIBER -- WHAT'S THE COST PER SUBSCRIBER,
7 WHAT'S THE PAYMENT PER SUBSCRIBER. IT'S ABOUT $2,000 IF YOU
8 ASSUME YOU'VE GOT 400,000 SUBSCRIBERS AND YOU PAY $800 MILLION
9 FOR THE PROPERTY. $800 MILLION, 400,000 SUBSCRIBERS, $2,000
10 PER SUBSCRIBER, JUST TO CHECK ON THE REASONABLENESS OF THE
11 NUMBERS.
12 Q. ARE DOLLARS PER SUBSCRIBER A MEASURE USED IN THE INDUSTRY
13 FROM TIME TO TIME TO VALUE NEWSPAPERS?
14 A. I'M ONLY WAITING. A LAWYER GOT UP, SO I DIDN'T KNOW IF HE
15 WAS GOING TO SAY SOMETHING OR NOT.
16 Q. OH, NO. HE'S GETTING A DRINK OF WATER.
17 A. OKAY. I THINK FROM TIME TO TIME YOU WILL SEE CALCULATIONS
18 OF, ON A PER SUBSCRIBER BASIS, OF WHAT PEOPLE PAY. I WOULDN'T
19 SUGGEST THAT THAT'S NECESSARILY HOW PEOPLE VALUE IT WHEN THEY
20 GO INTO THE NEGOTIATIONS, BUT IT'S A CHECK AND YOU CAN SEE THAT
21 IN VARIOUS REPORTS.
22 Q. AND THE PER SUBSCRIBER NUMBERS THAT ARE USED RUN FROM WHAT
23 TO WHAT?
24 A. I THINK I TESTIFIED 1500 TO $3,000 IN MY DEPOSITION. I
25 THINK THAT'S PROBABLY A FAIR NUMBER.
1365
WEAVER - REDIRECT / SHULMAN
1 Q. IF THE EXAMINER -- IF THE CHRONICLE HAS 450,000
2 SUBSCRIBERS AND THE NUMBER OF $3,000 PER SUBSCRIBER IS USED,
3 THAT PRODUCES A VALUE OF 1 MILLION 300 -- $1,350,000,000; IS
4 THAT RIGHT?
5 A. THAT'S CORRECT.
6 Q. THAT'S ABOUT TWICE WHAT HEARST WAS PAYING; RIGHT?
7 A. YES.
8 Q. LET -- OH, I THINK YOU ALSO SAID THAT YOU WERE SHOWN AT
9 SOME POINT THE FIGURE OF $275,784. DO YOU REMEMBER THAT AS
10 PART OF THE -- AS REVENUE OF THE AGENCY, ADVERTISING REVENUE
11 THAT WAS ATTRIBUTABLE TO ADVERTISING THAT WAS JUST -- THAT WAS
12 PLACED ONLY IN THE EXAMINER? DO YOU REMEMBER THAT?
13 A. YES.
14 Q. SO -- AND THAT'S OUT OF OVER $300 MILLION OF REVENUE?
15 A. YES.
16 Q. SO THE CONTRACTS FOR THE EXAMINER ALONE OUT OF THAT ARE
17 ONLY $275,000?
18 A. THE REVENUE THAT WAS RECEIVED DURING THAT YEAR WAS
19 $275,000, YES.
20 Q. WHAT, IF ANYTHING, DOES THAT TELL YOU ABOUT THE DIFFICULTY
21 OF SOMEBODY STARTING OUT WITH A NEW EXAMINER?
22 A. WELL, IT TELLS ME THAT AT THE RATES AT WHICH THE
23 EXAMINER -- THE CURRENT RATES AT WHICH THEY SELL THEIR
24 ADVERTISING WOULD NOT BE SUCCESSFUL.
25 Q. YOU WERE ALSO ASKED ABOUT VARIOUS ESTIMATES, THEY'RE ON
1366
WEAVER - REDIRECT / SHULMAN
1 THE EASEL THERE, THAT WERE MADE BY THE EXPERTS THAT WORKED WITH
2 MR. REILLY AS TO HOW THE EXAMINER WOULD DO OR IS DOING. DO YOU
3 REMEMBER THAT, ALL THOSE VARIOUS LOSSES?
4 A. YES.
5 Q. OKAY. NOW, THOSE -- WERE ALL OF THOSE ESTIMATES BASED ON
6 THE INFORMATION THAT WAS AVAILABLE AT THE TIME?
7 A. YES.
8 Q. LET ME SHOW YOU WHAT WAS IN EVIDENCE SHOWN TO YOU....
9 (PAUSE IN PROCEEDINGS.)
10 BY MR. SHULMAN:
11 Q. 303 IN EVIDENCE THAT WAS SHOWN TO YOU. AND THIS IS THE
12 MEMO OF FEBRUARY 22, 2000. DO YOU SEE THAT?
13 A. THAT'S CORRECT, YES.
14 Q. OKAY. IT SAYS IN THE SECOND PARAGRAPH:
15 "IT IS OBVIOUS THAT HEARST'S CURRENT
16 POSITION IN SAN FRANCISCO IS A PROFITABLE ONE.
17 WITH THEIR SHARE OF THE NEWSPAPER AGENCY EXCESS
18 PROFITS, THEY ARE MAKING MONEY."
19 IS THAT CONSISTENT WITH WHAT YOU KNEW?
20 A. YES.
21 MR. SHULMAN: THANK YOU. I HAVE NO FURTHER
22 QUESTIONS.
23 THE COURT: VERY WELL.
24 THEN, MR. WEAVER, YOU DESCRIBED A COMPETITIVE
25 SITUATION AS A SITUATION IN WHICH TWO DAILY NEWSPAPERS WERE
1367
1 SUBSTITUTES FOR ONE ANOTHER RATHER THAN COMPLEMENTARY OF ONE
2 ANOTHER. DO YOU RECALL YOUR TESTIMONY IN THAT REGARD?
3 THE WITNESS: YES.
4 THE COURT: IN HOW MANY CITIES IN THE UNITED STATES
5 OR METROPOLITAN AREAS IN THE COUNTRY ARE PAPERS WHICH YOU WOULD
6 CONSIDER SUBSTITUTES FOR ONE ANOTHER PUBLISHED?
7 THE WITNESS: I THINK MOST METROPOLITAN AREAS HAVE A
8 SUBSTITUTE PAPER UNDER THAT DEFINITION, AND I COULD GIVE YOU AN
9 EXAMPLE.
10 THE COURT: ALL RIGHT, IF YOU WOULD.
11 THE WITNESS: I BELIEVE IN ORANGE COUNTY, THE ORANGE
12 COUNTY REGISTER AND THE L.A. TIMES ARE SUBSTITUTE PAPERS.
13 THE COURT: ALL RIGHT. IN ORANGE COUNTY?
14 THE WITNESS: IN ORANGE COUNTY, YES.
15 THE COURT: IS THE ORANGE COUNTY REGISTER A
16 SUBSTITUTE FOR THE LOS ANGELES TIMES IN LOS ANGELES COUNTY?
17 THE WITNESS: I DON'T BELIEVE SO.
18 THE COURT: IS THERE A SUBSTITUTE FOR THE LOS
19 ANGELES TIMES, IN YOUR VIEW, IN LOS ANGELES COUNTY?
20 THE WITNESS: YES. I BELIEVE THE LOS ANGELES DAILY
21 NEWS IS A SUBSTITUTE IN THE AREAS IN WHICH IT CIRCULATES, WHICH
22 IS BASICALLY THE SAN FERNANDO VALLEY.
23 THE COURT: BUT IT DOES NOT HAVE THE SAME GEOGRAPHIC
24 REACH AS THE LOS ANGELES TIMES; IS THAT CORRECT?
25 THE WITNESS: THAT'S CORRECT.
1368
1 THE COURT: CAN YOU NAME ANY OTHER EXAMPLES?
2 THE WITNESS: I WOULD SAY THAT IN SAN MATEO AND
3 NORTHERN SANTA CLARA COUNTY, THAT THE CHRONICLE, THE EXAMINER
4 AND THE MERCURY NEWS ARE SUBSTITUTES. I WOULD SAY -- I WOULD
5 SAY NORTHERN SANTA CLARA AND SOUTHERN SAN MATEO COUNTY.
6 THE COURT: SOUTHERN SAN MATEO COUNTY, NORTHERN
7 SANTA CLARA COUNTY YOU WOULD CONSIDER CHRONICLE AND THE
8 EXAMINER AND THE MERCURY NEWS SUBSTITUTES FOR ONE ANOTHER?
9 THE WITNESS: YES.
10 THE COURT: IS THERE -- WHAT ABOUT THE SAN MATEO
11 TIMES, IS THAT WHAT YOU WOULD REGARD AS A SUBSTITUTE NEWSPAPER?
12 THE WITNESS: NO.
13 THE COURT: WHY NOT?
14 THE WITNESS: I THINK IF YOU LOOKED AT THE
15 OVERLAPPING READERSHIP, YOU'D FIND THAT THERE'S A MUCH GREATER
16 PERCENTAGE OF TWO NEWSPAPER READERS IF THEY TAKE THE SAN MATEO
17 TIMES. IN OTHER WORDS, THEY WILL TAKE THE SAN MATEO TIMES IN
18 ADDITION TO ONE OF THOSE METROPOLITAN NEWSPAPERS.
19 THE COURT: OKAY.
20 THE WITNESS: AND THAT PUTS THEM IN A DIFFERENT
21 SITUATION.
22 THE COURT: WHAT ABOUT OTHER AREAS OF THE BAY AREA?
23 ARE THERE OTHER AREAS WHERE THERE ARE PAPERS PUBLISHED THAT ARE
24 SUBSTITUTES FOR THE EXAMINER OR THE CHRONICLE?
25 THE WITNESS: I GUESS I WOULD ARGUE CONSISTENTLY
1369
1 HERE THAT IN CERTAIN PARTS OF MARIN COUNTY THE MARIN
2 INDEPENDENT JOURNAL IS A SUBSTITUTE; THAT IN CERTAIN PARTS OF
3 OAKLAND IN THE EAST BAY, THE OAKLAND TRIBUNE IS A SUBSTITUTE.
4 I GO BACK TO MY MOTHER WHO TAKES THE OAKLAND TRIBUNE, NOT A SAN
5 FRANCISCO PAPER. AND I THINK IN CONTRA COSTA COUNTY YOU HAVE
6 THE SAME THING WITH THE WEST CONTRA COSTA -- THE TIMES AND THE
7 CONTRA COSTA TIMES.
8 THE COURT: NOW, WHEN YOU'RE MAKING THIS ANALYSIS OR
9 FORMING THESE OPINIONS, ARE YOU THINKING OF SUBSTITUTE PAPERS
10 IN TERMS OF SUBSTITUTE PROVIDERS OF NEWS, ENTERTAINMENT AND
11 OPINION OR AS SUBSTITUTE ADVERTISING OUTLETS?
12 THE WITNESS: IT HAS TO INCLUDE BOTH OF THOSE, I
13 BELIEVE.
14 THE COURT: I SEE. SO IF A NEWSPAPER IS SIMPLY A
15 SUBSTITUTE FOR NEWS, ENTERTAINMENT OR OPINION, IT'S NOT REALLY
16 A SUBSTITUTE NEWSPAPER IN YOUR VIEW; IS THAT CORRECT?
17 THE WITNESS: MY VIEW OF THE NEWSPAPER INDUSTRY
18 IS -- YES, THAT'S CORRECT. MY VIEW IS THAT THE ADVERTISING
19 CONTENT IS AN IMPORTANT PART OF A NEWSPAPER TO A READER; AND,
20 THEREFORE, IT WOULD COME INTO THAT ANALYSIS OF A SUBSTITUTE.
21 AN EXAMPLE WOULD BE THE SAN MATEO TIMES AGAIN. THAT
22 IF YOU LIVE IN SAN MATEO AND YOU WANT TO KNOW AND BE AWARE OF
23 ALL THE ADVERTISING MACY'S DOES, YOU PROBABLY NEED TO TAKE ONE
24 OF THOSE THREE PAPERS. YOU PROBABLY WON'T GET NEARLY AS MUCH
25 IN THE SAN MATEO TIMES.
1370
1 THE COURT: YOU MEAN THE MERCURY NEWS, THE EXAMINER
2 AND CHRONICLE?
3 THE WITNESS: YES.
4 THE COURT: VERY WELL. THANK YOU, MR. WEAVER, FOR
5 YOUR TESTIMONY.
6 THE WITNESS: THANK YOU.
7 (WITNESS EXCUSED.)
8 THE COURT: WELL, MR. SHULMAN, I MUST SAY MARK
9 MC GWIRE IS LOOKING MORE AND MORE TEMPTING ALL THE TIME.
10 (LAUGHTER)
11 MR. SHULMAN: TO ME TOO, JUDGE.
12 THE COURT: WELL, PERHAPS WE SHOULD JUST ADJOURN.
13 WHO'S YOUR NEXT WITNESS?
14 MR. ALIOTO: OKAY. IF IT PLEASE YOUR HONOR,
15 MR. JOHN MORTON'S TESTIMONY WAS TAKEN BY DEPOSITION. WE DO
16 HAVE A VIDEOTAPE IF THE COURT WANTS TO WATCH THAT OR --
17 THE COURT: HOW LONG IS THE VIDEOTAPE?
18 MR. ALIOTO: IT'S 52 MINUTES.
19 THE COURT: OH, I THINK I CAN READ PROBABLY THE
20 TRANSCRIPT.
21 MR. ALIOTO: AS IT PLEASES YOUR HONOR.
22 THEN WITH REGARD TO -- WE DO HAVE A STIPULATION WITH
23 DEFENSE COUNSEL THAT THE PLAINTIFF IS, IN FACT, A SUBSCRIBER
24 AND, THEREFORE, WE WOULD NOT BE CALLING THE PLAINTIFF TO
25 ESTABLISH THAT FACT.
1371
1 THE COURT: OKAY. IS THIS WITH REGARD TO BOTH
2 NEWSPAPERS?
3 MR. ALIOTO: HE IS A SUBSCRIBER OF THE CHRONICLE AND
4 HE IS A PURCHASER OF THE EXAMINER AFTERNOON PAPER.
5 MR. HALLING: YOUR HONOR, WE'VE ACTUALLY DISCUSSED
6 SPECIFIC LANGUAGE AND THAT'S ALL WE'RE WILLING TO AGREE TO.
7 MR. ALIOTO: GO AHEAD. WELL, THAT'S FINE. I JUST
8 SAID IT.
9 THE COURT: OKAY. LET'S SEE HOW THINLY ARE WE GOING
10 TO SLICE THIS.
11 MR. HALLING: THE PARTIES STIPULATE THAT THE
12 PLAINTIFF, CLINTON REILLY, IS AND HAS BEEN A SUBSCRIBER TO THE
13 CHRONICLE AND IS AND HAS BEEN A PURCHASER OF SINGLE COPIES OF
14 THE EXAMINER.
15 MR. ALIOTO: OKAY.
16 THE COURT: OKAY.
17 MR. ALIOTO: THEN, YOUR HONOR, WE WOULD -- BEFORE
18 RESTING, WE WILL HAVE OR CROSS-EXAMINE MR. BENNACK AND
19 MR. IRISH, AND THEY, HOWEVER, WILL BE PUT ON ON THE DEFENDANTS'
20 CASE.
21 SO OTHERWISE WE WOULD REST, BUT WE ARE GOING TO --
22 WE AGREED TO TAKE THEM ON -- WE'RE NOT RESTING UNTIL WE FINISH
23 THE CROSS-EXAMINATION OF THOSE TWO WITNESSES.
24 THE COURT: I SEE. OKAY. THEIR DIRECT TESTIMONY IS
25 GOING TO PRECEDE THEIR CROSS-EXAMINATION?
1372
1 MR. ALIOTO: CORRECT, YOUR HONOR.
2 THE COURT: ALL RIGHT. SO WITH THE EXCEPTION OF
3 THOSE TWO REMAINING WITNESSES, YOU HAVE NO OTHER LIVE WITNESSES
4 TO PRESENT?
5 MR. ALIOTO: CORRECT. WE UNDERSTAND MR. FALK WILL
6 NOW TESTIFY.
7 MR. SHULMAN: WE NEED TO OFFER THE DEPOSITION AS AN
8 EXHIBIT.
9 (PAUSE IN PROCEEDINGS.)
10 MR. ALIOTO: WE THEN WILL OFFER -- AS THE COURT SAID
11 THE COURT WANTED TO READ MR. MORTON'S DEPOSITION, THEN WE WOULD
12 OFFER IT AS AN EXHIBIT.
13 THE COURT: ALL RIGHT.
14 MR. ALIOTO: I DON'T KNOW WHICH NUMBER, YOUR HONOR.
15 IT WOULD BE THE NEXT IN ORDER. THE DEFENDANTS HAVE GIVEN IT A
16 NUMBER. 1190, H-1190.
17 THE COURT: ALL RIGHT.
18 MR. ALIOTO: THANK YOU.
19 THE COURT: 1190 WILL BE ADMITTED.
20 (DEFENDANTS' EXHIBIT H-1190
21 RECEIVED IN EVIDENCE)
22 THE COURT: THANK YOU.
23 SO WE HAVE REMAINING IN THE PLAINTIFF'S CASE BENNACK
24 AND IRISH. THEIR TESTIMONY FOR THE PLAINTIFFS WILL BE
25 PRESENTED AS CROSS FOLLOWING THEIR DIRECT TESTIMONY IN THE
1373
1 DEFENDANTS' CASE IN CHIEF.
2 MR. ALIOTO: CORRECT.
3 THE COURT: ALL RIGHT. I ASSUME WE HAVE SOME
4 MOTIONS.
5 MR. HALLING: WE DO, YOUR HONOR.
6 WHEN WE COMMENCED THE TRIAL, WE FILED A MEMORANDUM
7 IN SUPPORT OF A MOTION TO DISMISS UNDER RULE 52(C) BECAUSE OF A
8 LACK OF STANDING. AT THIS POINT WE WOULD LIKE FOR THE RECORD
9 TO FORMALLY MAKE THAT MOTION.
10 A COUPLE OF THINGS HAVE OCCURRED RECENTLY THAT I
11 THINK ARE QUITE PERTINENT. FIRST, MR. REILLY APPARENTLY DOES
12 NOT HAVE ENOUGH OF A STAKE IN HIS OWN CASE EVEN TO TESTIFY,
13 NUMBER ONE.
14 NUMBER TWO, MR. REILLY, WHO PURPORTS TO BE TRYING TO
15 SAVE THE EXAMINER, IS NOT EVEN A SUBSCRIBER TO THE EXAMINER.
16 HE ONLY PURCHASES SINGLE COPY SALES, AS YOU JUST HEARD IN THE
17 STIPULATION. THERE ARE APPROXIMATELY 50,000 SINGLE COPY SALES
18 MADE TO INDIVIDUALS EVERY DAY.
19 THE GROUNDS FOR OUR MOTION ARE STATED IN THE
20 MEMORANDUM. I WOULD JUST NOTE THEM. FIRST, UNDER ARTICLE
21 THREE OF THE CONSTITUTION, THERE IS NOT A SUFFICIENT STAKE HERE
22 AS DEMONSTRATED BY THE FACT THAT WE HAVE 500,000 OR SO
23 SUBSCRIBERS TO THE CHRONICLE. WE HAVE THE 50,000 SINGLE COPY
24 SALES DAILY I MENTIONED FOR THE EXAMINER. THERE ARE MILLIONS
25 OF POTENTIAL ADVERTISERS IN THE BAY AREA. MR. REILLY HAS
1374
1 ASSERTED PREVIOUSLY THAT AS AN INDIVIDUAL HE IS A POTENTIAL
2 ADVERTISER. THERE NEEDS TO BE MORE UNDER ARTICLE THREE.
3 THERE IS ALSO AN ISSUE UNDER THE CONSTITUTION OF
4 JUSTICIABILITY BECAUSE MR. REILLY HAS STATED IN HIS DEPOSITION,
5 QUOTED IN OUR PAPERS, THAT HE IS TRYING TO PRESERVE THE
6 EXAMINER IN EXACTLY THE FORM IT'S IN, THE SAME JOURNALISTIC
7 QUALITY, THE SAME FORMAT AND SO FORTH. WE DON'T THINK THAT'S A
8 PROPER -- THAT'S A PROPER TOPIC FOR FEDERAL COURTS TO BE
9 ADJUDICATING, THE TYPE OF NEWSPAPER ONE PUBLISHES.
10 THE SECOND GROUND WOULD BE SECTION --
11 THE COURT: WELL, I WAS JUST MULLING THAT OVER IN MY
12 MIND.
13 MR. HALLING: THE QUESTION IS WHETHER WE WANT THE
14 FEDERAL COURTS TO BE DECIDING WHETHER OR NOT A CERTAIN
15 NEWSPAPER IS OF A CERTAIN QUALITY. I DON'T THINK THAT'S THE
16 KIND OF DISPUTE THAT NORMALLY IS RESOLVED BY FEDERAL COURTS.
17 THE COURT: IT'S TEMPTING NONETHELESS.
18 (LAUGHTER)
19 MR. HALLING: FAIR ENOUGH.
20 THE SECOND GROUND IS SECTION 16 OF THE CLAYTON ACT
21 SPECIFICALLY PROVIDES THAT THERE HAS TO BE A THREATENED
22 ECONOMIC INJURY. WE KNOW FROM THE NINTH CIRCUIT DECISION OF
23 LUCAS AUTOMOTIVE THAT THE INJURY MUST BE OF THE SAME TYPE AS
24 SECTION 4 OF THE CLAYTON ACT, WHICH IS INJURY TO THE
25 PLAINTIFF'S BUSINESS OR PROPERTY. THERE IS NO SUCH INJURY
1375
1 HERE. MR. REILLY IS MERELY A POTENTIAL ADVERTISER.
2 AND, FINALLY, THE THIRD GROUND IS THERE'S NO
3 ANTITRUST INJURY, WHICH IS A SPECIAL REQUIREMENT THAT -- A
4 SPECIAL REQUIREMENT IN ANTITRUST CASES THAT THE PLAINTIFF MUST
5 HAVE INJURY OF THE TYPE OR HERE AT LEAST THREATENED INJURY OF
6 THE TYPE THE ANTITRUST LAWS ARE DESIGNED TO PREVENT.
7 WE KNOW FROM MR. SCHMIDT'S TESTIMONY FROM YESTERDAY
8 HE STATED IN RESPONSE TO YOUR HONOR'S QUESTIONS THAT THERE WERE
9 THREE COMPETING METROPOLITAN DAILY NEWSPAPERS HERE: THE
10 CHRONICLE, EXAMINER AND THE MERCURY NEWS IN THIS MARKETPLACE.
11 YOUR HONOR ASKED HIM A QUESTION ABOUT VIEWING THE
12 CHRONICLE AND EXAMINER AS A SINGLE ENTERPRISE, WHICH OF COURSE
13 IS HOW THEY SHOULD BE VIEWED BECAUSE THEY ARE A JOINT OPERATING
14 AGREEMENT AND THE RATES ARE SET JOINTLY.
15 SO BEFORE THIS ACQUISITION, THERE WERE TWO ECONOMIC
16 ENTITIES IN THE METROPOLITAN DAILY NEWSPAPER BUSINESS HERE, THE
17 CHRONICLE AND EXAMINER ON THE ONE HAND AND THE MERCURY NEWS ON
18 THE OTHER, ACCORDING TO MR. SCHMIDT. AFTER THIS ACQUISITION,
19 THERE WILL STILL BE TWO, EVEN IF THE EXAMINER IS SHUT DOWN.
20 IF ANY COMPETITION IS PROVIDED BY THE INDEPENDENT,
21 AND THERE WILL BE SOME, THAT IS A COMPLAINT MR. REILLY IS
22 MAKING THAT IS NOT OF THE TYPE THAT THE ANTITRUST LAWS ARE
23 DESIGNED TO ADDRESS.
24 THE COURT: LET ME STOP YOU HERE. I ASKED AND
25 SOLICITED YOUR ARGUMENT ON MOTIONS AND THEN AFTER THEY BEGAN I
1376
1 BEGAN TO HAVE SECOND THOUGHTS.
2 THE PLAINTIFF STILL INTENDS TO PRESENT TESTIMONY
3 THROUGH TWO WITNESSES, AND SO TECHNICALLY HAS NOT BEEN FULLY
4 HEARD ON THE ISSUE. SO I SUPPOSE I SHOULD ASK MR. ALIOTO AT
5 THIS POINT WHETHER THE TESTIMONY OF BENNACK AND IRISH ARE GOING
6 TO AFFECT ANY OF THE MATTERS THAT MR. HALLING IS ADDRESSING.
7 MR. ALIOTO: I THINK SO, YOUR HONOR, AND ALSO
8 MR. FALK. MR. FALK WILL BE COMING ON AS THEIR NEXT WITNESS.
9 MR. FALK RUNS THE SAN FRANCISCO NEWSPAPER AGENCY.
10 THE COURT: WELL, I'M AFRAID I DREW YOU INTO YOUR
11 ARGUMENT, MR. HALLING, AND THEN REALIZED PLAINTIFF HAD NOT BEEN
12 FULLY HEARD AND, THEREFORE, A MOTION UNDER RULE 50 IS PROBABLY
13 NOT APPROPRIATE AT THIS TIME.
14 LET ME, WITHOUT CUTTING YOU OFF OR FORECLOSING YOU
15 FROM AMPLIFYING THESE ARGUMENTS FURTHER AT AN APPROPRIATE TIME,
16 SIMPLY SAY THAT AS LONG AS THERE REMAINS A PART OF THE
17 PLAINTIFF'S CASE TO PRESENT, I THINK I BEST DEFER RULING ON
18 YOUR RULE 50 MOTION.
19 MR. ROSCH: CAN I TAKE A WHACK AT IT, YOUR HONOR?
20 THE COURT: BEFORE THE PLAINTIFF IS FULLY HEARD?
21 MR. ROSCH: YES.
22 THE COURT: ON WHAT GROUND?
23 MR. ROSCH: BECAUSE I BELIEVE THAT THE PLAINTIFF HAS
24 BEEN FULLY HEARD WITH RESPECT TO THE SECTION 16 ISSUE.
25 THE COURT: WELL, WITH REFERENCE TO THE STANDING
1377
1 ISSUE?
2 MR. ROSCH: THAT'S CORRECT. MORE SPECIFICALLY, YOUR
3 HONOR, THE PLAINTIFF HAS NOW RESTED WITHOUT PUTTING ON ANY
4 EVIDENCE, AND IT COULD ONLY COME FROM MR. REILLY, WITH RESPECT
5 TO WHETHER OR NOT HE IS THREATENED WITH INJURY TO BUSINESS OR
6 PROPERTY. THAT CAN ONLY COME FROM MR. REILLY.
7 THE COURT: WELL, WE HAVE THE STIPULATION --
8 MR. ROSCH: WE DO, YOUR HONOR.
9 THE COURT: -- THAT HE IS A SUBSCRIBER AND THAT HAS
10 BEEN THE BASIS OF HIS CLAIM FOR STANDING. ISN'T THE STANDING
11 INQUIRY INFORMED BY THE GLOSS, AS WE DESCRIBED IT, THAT THE
12 NEWSPAPER PRESERVATION ACT PLACES ON THE --
13 MR. ROSCH: I THINK NOT, YOUR HONOR, IF I MAY, AND
14 I'D LIKE TO EXPLAIN WHY I BELIEVE THAT IS NOT SO.
15 THE COURT: ALL RIGHT.
16 MR. ROSCH: AGAIN, IF I MAY JUST START BY FOCUSING
17 ON WHAT THE EVIDENCE IS BEFORE THE COURT RIGHT NOW, BECAUSE
18 IT'S CLOSED AS FAR AS THAT ISSUE IS CONCERNED, AND IT COMES
19 DOWN TO THIS --
20 THE COURT: I'M NOT SURE THAT MR. ALIOTO AGREES WITH
21 THAT.
22 MR. ROSCH: WELL, YOUR HONOR, WITH RESPECT TO
23 MR. REILLY'S STATUS HERE, IT COMES DOWN TO THIS: HE SAYS HE'S
24 A SUBSCRIBER TO THE CHRONICLE AND A SOMETIME BUYER OF THE
25 EXAMINER, AND THAT'S IT. AND THERE'S NOT GOING TO BE ANY MORE
1378
1 EVIDENCE THAN THAT. HE HASN'T EVEN TOLD THE COURT WHAT HE DOES
2 WITH THE EXAMINER WHEN HE BUYS IT. THIS IS JUST -- THAT'S IT.
3 (LAUGHTER)
4 MR. ROSCH: THAT'S THE STATE OF THE RECORD. THAT'S
5 THE STATE OF THE RECORD, AND THERE'S NOT GOING TO BE ANY MORE.
6 SO IT CAN BE TESTED.
7 NOW, WITH RESPECT TO THE LAW, THE LAW IS PERFECTLY
8 CLEAR THAT HE HAS TO DEMONSTRATE, UNDER SECTION 16, THAT HE IS
9 THREATENED WITH INJURY TO HIS BUSINESS OR PROPERTY WHEN HE IS A
10 SUBSCRIBER, AND THAT MEANS HE HAS TO DEMONSTRATE ECONOMIC LOSS.
11 NOW, THE PLAINTIFFS SUGGESTED IN THEIR TRIAL BRIEF
12 THAT THAT DIDN'T COUNT IF YOU WERE A CONSUMER, THAT IT WAS
13 ENOUGH TO DEMONSTRATE THAT THERE WOULD BE A LOSS OF CHOICE.
14 AND I THINK THAT'S WHAT THE COURT IS ALLUDING TO.
15 BUT THE CASES THAT THEY'VE CITED DON'T SAY THAT AT
16 ALL. EACH AND EVERY ONE OF THEM HAVE BEEN CASES WHERE THE
17 CONSUMER HAS BEEN ABLE TO DEMONSTRATE EITHER ACTUAL OR
18 THREATENED ECONOMIC LOSS. GENERALLY SPEAKING, IT'S THROUGH AN
19 OVERCHARGE OR SOMETHING OF THAT NATURE. BUT EACH AND EVERY ONE
20 OF THOSE CASES HAVE BEEN CASES WHERE THERE HAS BEEN A
21 DEMONSTRATION OF ECONOMIC LOSS AND THERE IS NO AUTHORITY, NONE
22 WHATEVER, THAT WHEN A PLAINTIFF CAN'T DEMONSTRATE THAT, THAT HE
23 HAS STANDING UNDER EITHER SECTION 4 OR 16.
24 THE COURT: WHAT ABOUT THE HONOLULU CASE? NOW,
25 THAT, OF COURSE, WAS BROUGHT BY THE STATE AND I BELIEVE THE
1379
1 CITY OF HONOLULU, PUBLIC ENTITY THAT --
2 MR. ROSCH: ABSOLUTELY, YOUR HONOR.
3 THE COURT: AND OBVIOUSLY MR. REILLY CANNOT SO
4 CLAIM, ALTHOUGH --
5 MR. ROSCH: THAT'S CORRECT.
6 THE COURT: -- HAD THE RESULTS OF THE ELECTION BEEN
7 DIFFERENT, HE MIGHT HAVE BEEN ABLE TO DO SO; BUT, NONETHELESS,
8 THERE'S NO INJURY TO THE PARENS PATRIAE, NO INJURY IN THE
9 STRICT ANTITRUST SENSE THAT YOU'VE BEEN SPEAKING OF; AND YET
10 IT'S PRETTY CLEAR THE NINTH CIRCUIT HAS PERMITTED THE HONOLULU
11 CASE TO GO FORWARD. MR. REILLY IS PROCEEDING MORE OR LESS ON
12 THE SAME KIND OF PRIVATE ATTORNEY GENERAL THEORY.
13 MR. ROSCH: WELL, IF I MAY, YOUR HONOR, SPEAK TO
14 THAT.
15 NUMBER ONE, IT WAS A PARENS CASE, AND AS THE COURT
16 KNOWS, THERE'S A SPECIFIC PROVISION IN THE CLAYTON ACT THAT
17 AFFORDS THE STATE OF HAWAII STANDING. AND MR. REILLY DOES NOT
18 HAVE THE BENEFIT OF THAT STATUTE, BUT HE IS SUING HERE -- HE IS
19 NOT -- HE'S NOT EVEN A CLASS PLAINTIFF. HE'S SUING AS
20 MR. REILLY, A SUBSCRIBER AND SOMETIME PURCHASER OF THE
21 EXAMINER.
22 NOW, THE RECORD, AS IT BEARS ON HIS ECONOMIC LOSS,
23 IS CLEAR THAT HE SUFFERS NONE. AND THE REASON FOR THAT IS THAT
24 EVERY SINGLE WITNESS, INCLUDING DR. COMANOR, HAS TESTIFIED THAT
25 THERE IS CURRENTLY NO PRICE COMPETITION BETWEEN THE EXAMINER
1380
1 AND THE CHRONICLE NOW.
2 THE COURT: WELL --
3 MR. ROSCH: AND, INDEED -- EXCUSE ME.
4 THE COURT: YOU'RE THINKING -- ALL RIGHT. FINISH
5 YOUR THOUGHT.
6 MR. ROSCH: NO, PLEASE.
7 THE COURT: THE TESTIMONY HAS BEEN THAT NEWSPAPERS
8 SERVE TWO MARKETS. THEY SERVE A MARKET OF ADVERTISING OUTLETS
9 AND THEY SERVE A MARKET FOR READERS IN PROVIDING NEWS,
10 ENTERTAINMENT AND OPINION.
11 GIVEN THAT FACT, WHY IS NOT IT REASONABLE TO ASSUME
12 THAT ANTITRUST INJURY CAN EMBRACE THE LOSS OF AN OUTLET OF
13 NEWS, OPINION AND -- NEWS, ENTERTAINMENT AND OPINION TO ONE WHO
14 REGULARLY SUBSCRIBES TO ONE OF THOSE SOURCES AND WHO IS A
15 REGULAR PURCHASER OF ANOTHER OF THOSE SOURCES?
16 MR. ROSCH: THE ANSWER TO THAT, YOUR HONOR, IS THAT
17 ANTITRUST INJURY IS A SEPARATE AND ADDITIONAL REQUIREMENT TO
18 INJURY TO BUSINESS OR PROPERTY. THERE ARE TWO REQUIREMENTS
19 UNDER SECTION 16.
20 THE COURT: WELL, I QUITE AGREE WITH THAT. WE'RE
21 TALKING ABOUT INJURY TO BUSINESS OR PROPERTY.
22 MR. ROSCH: CORRECT. AND, AS I SAY, THAT NEEDS BE
23 ECONOMIC INJURY.
24 THE COURT: AND WHY, GIVEN THE NEWSPAPER
25 PRESERVATION ACT AND THE TWO SEPARATE MARKETS WHICH NEWSPAPERS
1381
1 SERVE, IT'S NOT REASONABLE TO INFER THAT INJURY TO BUSINESS OR
2 PROPERTY IN THIS CONTEXT, A VERY LIMITED CONTEXT TO BE SURE,
3 WOULD NEVERTHELESS EMBRACE THE KIND OF INJURY WHICH THE
4 PLAINTIFF ASSERTS IN THIS CASE?
5 MR. ROSCH: BECAUSE IT IS NOT ECONOMIC LOSS, YOUR
6 HONOR. WHAT YOUR HONOR IS TALKING ABOUT IS, AND WHAT I BELIEVE
7 THE PLAINTIFF IS TALKING ABOUT, IS A LOSS OF CHOICE, AND THAT
8 IS NOT ECONOMIC LOSS AND NEVER HAS BEEN TREATED AS SUCH.
9 THE COURT: WELL --
10 MR. ROSCH: WITH RESPECT TO ECONOMIC LOSS,
11 DR. COMANOR --
12 THE COURT: ECONOMIC LOSS OR ANTITRUST INJURY?
13 MR. ROSCH: ECONOMIC LOSS. INJURY TO BUSINESS OR
14 PROPERTY, DIFFERENT CONCEPT FROM ANTITRUST INJURY. IT MAY WELL
15 BE, ALTHOUGH FRANKLY I DON'T BELIEVE IN THE NINTH CIRCUIT IT IS
16 THE LAW, THAT ONE CAN POSIT ANTITRUST INJURY ON THE BASIS OF A
17 LOSS OR DIMINUTION IN SIMPLY, A DIMINUTION IN THE NUMBER OF
18 COMPETITORS OR CONSUMER CHOICE. I THINK REBEL OIL SPEAKS TO
19 THAT.
20 BUT THAT'S NOT WHAT I'M TALKING ABOUT. I'M TALKING
21 ABOUT INJURY TO BUSINESS OR PROPERTY WHICH IS A CONCEPT OF
22 ECONOMIC LOSS. AND DR. COMANOR SPECIFICALLY TESTIFIED AT PAGE
23 468 THAT, QUOTE:
24 "THE FURTHER COMBINATION OF THE CHRONICLE
25 AND THE EXAMINER UNDER THE SAME OWNERSHIP
1382
1 WOULDN'T HAVE ANY IMPACT ON ECONOMIC
2 COMPETITION."
3 NOW, THAT'S EXACTLY THE STATE OF THE RECORD THAT
4 WE'RE DEALING WITH HERE WHEN MR. REILLY CLOSES HIS CASE AND
5 COMES TO THE COURT AND ASKS TO PROCEED ON THE BASIS THAT HE IS
6 SIMPLY A SUBSCRIBER TO THE CHRONICLE AND A SOMETIME PURCHASER
7 OF THE EXAMINER.
8 THANK YOU, YOUR HONOR.
9 THE COURT: MR. ALIOTO OR MR. SHULMAN, WHO WISHES TO
10 ADDRESS THAT?
11 MR. ALIOTO: WELL, I AM GOING TO ADDRESS SOME OF
12 THESE ISSUES WITH THE NEXT WITNESS, AS A MATTER OF FACT.
13 HOWEVER, I WOULD POINT OUT TO THE COURT --
14 THE COURT: THE NEXT WITNESS WILL BE?
15 MR. ALIOTO: MR. FALK.
16 THE COURT: OKAY.
17 MR. HALLING: WHO IS NOT ONE OF THE WITNESSES IN HIS
18 CASE.
19 MR. ALIOTO: HE IS NOT, BUT I'M WAITING AND I
20 HAVEN'T RESTED YET. AND IF HE'S IN THE COURTROOM, THEN I WOULD
21 REQUEST THAT HE BE DIRECTED TO GET ON THE STAND.
22 (LAUGHTER)
23 THE COURT: ANYWAY.
24 MR. ALIOTO: I WILL SAY, YOUR HONOR, THAT AMONG
25 OTHER THINGS, EVEN ON A VERY STRAIGHT ECONOMIC BASIS, YOU HAVE
1383
1 THE ANALYSIS THAT WAS DONE BY THE ADVISORS TO THE CHRONICLE
2 ITSELF WHO ADVISED THEM AND TOLD THEM, AND I BELIEVE IT WAS
3 PART OF THEIR CONSIDERATION, THAT IF WE HAVE ONE NEWSPAPER IN
4 THIS CITY, THAT THE EFFECT IS GOING TO BE THAT THE PRICES ARE
5 GOING TO BE SUBSTANTIALLY GREATER AND THAT --
6 THE COURT: SUBSCRIBER PRICES?
7 MR. ALIOTO: YES.
8 THE COURT: STREET PRICES?
9 MR. ALIOTO: RATES, YES, YOUR HONOR. WE DID HAVE
10 ALSO EVEN IN THIS CASE AN EFFECT, I BELIEVE, UPON SOME OF THE
11 PRICES AS WELL.
12 THE COURT: WHO PROVIDED THAT TESTIMONY?
13 MR. ALIOTO: THAT WAS IN THE DLJ DOCUMENT.
14 THE COURT: ALL RIGHT.
15 MR. ALIOTO: AND IT WAS THE MAY 4, 1999, DOCUMENT.
16 THE COURT: THE WAR SCENARIO?
17 MR. ALIOTO: THE WAR, OTHERWISE KNOWN AS
18 COMPETITION, YES, YOUR HONOR.
19 (LAUGHTER)
20 MR. ALIOTO: BUT THAT'S NOT THE -- BUT THAT'S NOT
21 THE -- THAT'S NOT THE COMPLETE PART OF THAT, AND I WOULD, IF
22 WE'RE GOING TO HAVE THIS ARGUMENT, I WOULD LIKE TO HAVE IT, IF
23 WE'RE GOING TO HAVE IT BEFORE WE'RE FINISHED WITH MR. BENNACK
24 AND WITH MR. IRISH, I WOULD LIKE TO HAVE IT AT LEAST AFTER
25 MR. FALK.
1384
1 THE COURT: WELL, I'M GOING TO RESERVE ON THIS AT
2 THE PRESENT TIME. AS COUNSEL WELL KNOW, ORDINARILY THE ISSUE
3 OF STANDING IN AN ANTITRUST CASE WOULD HAVE BEEN LITIGATED IN
4 AN EARLY STAGE IN THE PROCEEDINGS, PROBABLY BY MOTION, MAYBE BY
5 AN EVIDENTIARY HEARING. BUT IT'S AN ISSUE THAT WOULD HAVE BEEN
6 FLESHED OUT EARLY IN THE CASE.
7 THIS CASE HAS PROCEEDED ALONG AT SUCH AN UNUSUALLY
8 FAST CLIP WE BASICALLY COLLAPSED THE ENTIRE PRETRIAL AND
9 DISCOVERY PHASE INTO A MATTER OF, YOU KNOW BETTER THAN I, SIX
10 WEEKS, BUT A VERY SHORT PERIOD OF TIME AND THE LAW AND MOTION
11 PRACTICE THAT OTHERWISE WOULD HAVE OCCURRED AND SORTED OUT
12 THESE ISSUES HAS SIMPLY NOT OCCURRED.
13 AND, INDEED, IT WAS AT THE DEFENDANTS' REQUEST AS
14 WELL AS THE PLAINTIFF'S THAT WE WENT TO TRIAL --
15 MR. ROSCH: SO STIPULATED, YOUR HONOR.
16 THE COURT: -- BEFORE DOING THESE -- GOING THROUGH
17 ALL OF THESE MOTION PRACTICES AND SORTING OUT THESE ISSUES.
18 SO HAVING PROCEEDED ALONG THAT LINE AND IN ADDITION
19 BECAUSE THE PLAINTIFF HAS NOT FULLY PRESENTED HIS CASE,
20 ALTHOUGH I'M NOT SURE WHAT ADDITIONAL EVIDENCE ON THE STANDING
21 WILL BE PRESENTED, I'LL KEEP AN OPEN MIND WITH REFERENCE TO
22 THAT, BUT BECAUSE OF THOSE TWO MATTERS, THE FAST PACE THAT WE
23 PROCEEDED UNDER AND THE FACT THAT TECHNICALLY THE PLAINTIFF HAS
24 NOT RESTED, I'M GOING TO RESERVE ON THE STANDING ISSUE AT THIS
25 TIME. I'M SURE WE'LL REVISIT THIS QUESTION.
1385
1 MR. ROSCH: THANK YOU, YOUR HONOR.
2 THE COURT WILL RECALL THAT I DID RESERVE FOR OPENING
3 STATEMENT AND I'D LIKE TO SPEND ABOUT FIVE MINUTES TELLING THE
4 COURT WHAT WE'RE GOING TO BE PUTTING ON.
5 THE COURT: ALL RIGHT. WHY DON'T WE DO THAT RIGHT
6 AFTER LUNCH.
7 MR. ROSCH: THAT WILL BE SPLENDID. THANK YOU, YOUR
8 HONOR.
9 THE COURT: ALL RIGHT. WHY DON'T WE COME BACK AT
10 1:30 AND THEN MR. ROSCH WILL MAKE HIS OPENING STATEMENT AND
11 WE'LL LEAD OFF WITH THE FIRST WITNESS. MR. FALK; IS THAT
12 CORRECT?
13 MR. HALLING: CORRECT.
14 THE COURT: THANK YOU.
15 MR. SHULMAN: YOUR HONOR? YOUR HONOR?
16 THE COURT: YES, SIR.
17 MR. SHULMAN: MAY I JUST BRIEFLY SUGGEST THAT THE
18 JUSTICE DEPARTMENT'S AMICUS BRIEF DOES HAVE SOME BEARING ON THE
19 ISSUE OF COMPETITIVE EFFECT.
20 THE COURT: COMPETITIVE?
21 MR. SHULMAN: COMPETITIVE EFFECT FROM THE ENDING OF
22 A JOA, WHICH I THINK IS RELEVANT TO THE ISSUES THAT HAVE JUST
23 BEEN RAISED.
24 THE COURT: VERY WELL. THANK YOU, MR. SHULMAN.
25 (LUNCHEON RECESS WAS TAKEN AT 12:08 P.M.)
1386
1 AFTERNOON SESSION 1:37 P.M.
2
3 THE COURT: COUNSEL, FOR YOUR PLANNING PURPOSES, WE
4 HAVE MANAGED TO CLEAR MOST OF THE MATTERS FROM TOMORROW
5 AFTERNOON'S CALENDAR. SO I STILL HAVE A NUMBER OF CASE
6 MANAGEMENT CONFERENCES TO TAKE AT 3:30, BUT WE'LL BE ABLE TO GO
7 PRETTY MUCH RIGHT UP TO 3:30 TOMORROW, IF NECESSARY. SO THAT
8 SHOULD HELP IN GETTING THINGS CLEARED AWAY.
9 MR. ALIOTO: ALL DAY TOMORROW?
10 THE COURT: PRETTY MUCH ALL DAY TOMORROW.
11 MR. ALIOTO: VERY GOOD, YOUR HONOR.
12 THE COURT: MR. ROSCH, YOU LOOK LIKE YOU'RE ABOUT
13 READY TO COME TO THE PODIUM WITH YOUR OPENING STATEMENT.
14 MR. ROSCH: THANK YOU, YOUR HONOR. I PROMISED YOU
15 FIVE MINUTES, AND I'LL TRY TO DO IT IN LESS.
16 OPENING STATEMENT
17 MR. ROSCH: YOUR HONOR, YOU ALREADY HEARD FROM OUR
18 WITNESSES MR. SIAS AND MS. GREENTHAL, AND OUR REMAINING
19 WITNESSES WILL BE TWOFOLD. I'D LIKE TO DISCUSS THEM IN REVERSE
20 ORDER, IF I MAY.
21 ONE WILL BE DR. ROSSE, WHO YOU WILL RECALL THAT
22 DR. COMANOR ACKNOWLEDGED AS ONE OF THE PREEMINENT NEWSPAPER
23 ECONOMISTS IN THE UNITED STATES.
24 DR. ROSSE WILL CONFIRM WHAT ALL SEVEN OF
25 MR. REILLY'S NEWSPAPER EXPERTS TESTIFIED -- HAVE ALREADY
1387
1 TESTIFIED TO, MORE SPECIFICALLY THAT THE EXAMINER IS A FAILING
2 ENTERPRISE.
3 HE WILL TESTIFY, AS DID MR. REILLY'S EXPERTS, THAT
4 IT IS LOSING TENS OF MILLIONS OF DOLLARS ON A STAND-ALONE
5 BASIS. HE WILL ALSO TESTIFY THAT, AS MR. REILLY'S EXPERTS HAVE
6 TESTIFIED, THAT THOSE LOSSES CAN BE EXPECTED TO CONTINUE AND,
7 INDEED, ACCELERATE IN THE FUTURE BECAUSE OF THE SO-CALLED
8 DOWNWARD ECONOMIC SPIRAL, A PHENOMENON IN WHICH A NEWSPAPER'S
9 DECLINING CIRCULATION REDUCES ITS ADVERTISING REVENUE AND VICE
10 VERSA, AND THAT SPIRAL OPERATES INEVITABLY IN THE CONTEXT OF A
11 NEWSPAPER LIKE THE EXAMINER, WHICH IS AT A FOUR-PLUS-TO-ONE
12 DISADVANTAGE VIS-A-VIS THE CHRONICLE.
13 THE SECOND WITNESS WHICH WE WILL BE CO-SPONSORING
14 WITH HEARST IS MR. STEVE FALK, WHO HAS HEADED THE SAN FRANCISCO
15 NEWSPAPER AGENCY. MR. FALK WILL CONFIRM WHAT I BELIEVE EVERY
16 WITNESS, INCLUDING MR. REILLY'S SEVEN EXPERT WITNESSES, HAVE
17 ALREADY SAID TO YOUR HONOR; NAMELY, THAT DR. COMANOR'S
18 TESTIMONY THAT THE RELEVANT MARKET IN THIS CASE IS LIMITED TO
19 THE TWO DAILY NEWSPAPERS IN SAN FRANCISCO, NAMELY, THE
20 CHRONICLE AND THE EXAMINER, IS NOTHING MORE THAN A FIGMENT OF
21 DR. COMANOR'S IMAGINATION.
22 MR. ALIOTO: THAT'S ARGUMENT. I OBJECT. THAT'S
23 ARGUMENT. IT'S NOT AN OPENING STATEMENT, JUDGE. OKAY.
24 THE COURT: ALL RIGHT. SOMETHING ABOUT POTS AND
25 KETTLES COME TO MIND, BUT ANYWAY.
1388
1 (LAUGHTER)
2 MR. ROSCH: WE'VE DONE THIS BEFORE, YOUR HONOR,
3 MR. ALIOTO AND I.
4 MORE SPECIFICALLY, MR. FALK WILL CONFIRM THAT MORE
5 THAN HALF OF THE CHRONICLE'S CIRCULATION IS OUTSIDE SAN
6 FRANCISCO AND THAT ITS ADVERTISING REVENUE IS VERY LARGELY
7 DEPENDENT UPON THAT CIRCULATION.
8 THE COURT: DID I NOT SEE SOME FIGURES IN SOME OF
9 THE EXHIBITS THAT HAVE BEEN FLOATING THROUGH HERE IN THE LAST
10 FEW DAYS THAT SUGGESTED EVEN MORE OF THE CHRONICLE CIRCULATION
11 IS OUTSIDE THE CITY AND COUNTY OF SAN FRANCISCO?
12 MR. ROSCH: YES, YOUR HONOR, AND I WAS BEING
13 CONSERVATIVE ABOUT THAT. MR. FALK WILL BE PUTTING BEFORE THE
14 COURT VERY PRECISE FIGURES IN THAT REGARD.
15 THE COURT: ALL RIGHT. ALL RIGHT.
16 MR. ROSCH: HE WILL ALSO CONFIRM WHAT MR. REILLY'S
17 EXPERTS HAVE SAID AND, FRANKLY, WHAT I THINK ECONOMICS TEACHES;
18 NAMELY, THAT THE CHRONICLE FACES STIFF COMPETITION FROM THE
19 SUBURBAN NEWSPAPERS AND THAT BECAUSE IT DOES SO, IT MUST
20 MAINTAIN ITS STANDARDS AND IT MUST PAY ATTENTION TO ITS PRICING
21 LEST IT LOSE CIRCULATION AND ULTIMATELY ADVERTISING TO THOSE
22 SUBURBAN NEWSPAPERS.
23 IN OTHER WORDS, THE OUTSIDE PRESSURE OF THESE
24 NEWSPAPERS IMPOSES A COMPETITIVE CHECK UPON IT.
25 HE WILL ALSO TESTIFY WHAT -- AND CONFIRM WHAT
1389
1 MR. FLOOD TOLD YOU YESTERDAY; NAMELY, THAT OTHER MEDIA ALSO
2 IMPOSE A SUBSTANTIAL COMPETITIVE CHECK ON THE CHRONICLE.
3 IN OTHER WORDS, YOUR HONOR, THESE TWO WITNESSES WILL
4 CONFIRM WHAT WE BELIEVE THAT MR. REILLY'S EXPERTS HAVE ALREADY
5 ESTABLISHED TO DATE; NAMELY, THAT THIS CASE, AS AN ANTITRUST
6 CASE, IS NOT VIABLE.
7 THANK YOU, YOUR HONOR.
8 THE COURT: BEFORE YOU LEAVE, IS THERE GOING TO BE
9 ANY EVIDENCE ON WHY THE CHRONICLE NEVER ATTEMPTED, AS FAR AS
10 I'M AWARE, TO BREAK THE JOINT OPERATING AGREEMENT?
11 IF THE FACTS ARE AS YOU CONTEND THE EVIDENCE WILL
12 SHOW, THAT THE EXAMINER HAS BEEN SUBSIDIZED, TO USE THE TERM
13 THAT HAS BEEN USED IN THE PROCEEDINGS, HAS BEEN SUB -- THAT THE
14 EXAMINER HAS BEEN SUBSIDIZED BY THE CHRONICLE OVER THE YEARS TO
15 THE POINT THAT THE JOINT OPERATING AGREEMENT AS A WHOLE, BOTH
16 COMPANIES OPERATING IN THEIR ENTIRETY, WOULD BE BETTER OFF
17 WITHOUT THE JOINT OPERATING AGREEMENT, WHY HAS THERE BEEN NO
18 EFFORT TO ELIMINATE THE JOINT OPERATING AGREEMENT?
19 MR. ROSCH: WELL, YOUR HONOR, I CERTAINLY CAN'T
20 SPEAK FOR HEARST, BUT I CAN SPEAK FOR THE FAMILY THAT OWNS THE
21 CHRONICLE; AND I THINK THAT THE ANSWER TO THAT IS THAT THEY
22 BELIEVE THEY HAVE A CONTRACT, A WRITTEN CONTRACT, A BINDING
23 CONTRACT. THEY BELIEVE THAT THEY ARE BOUND BY THAT CONTRACT,
24 AND THEY HAVE EXERCISED THE RIGHTS THAT THEY HAVE UNDER THAT
25 CONTRACT TO GET OUT OF IT AS SOON AS THEY CAN. BUT AS SOON AS
1390
1 THEY CAN IS 2005.
2 THE COURT: AND THAT'S THE ONLY REASON?
3 MR. ROSCH: I BELIEVE SO, YOUR HONOR. I BELIEVE
4 THEY BELIEVE THAT THEY HAVE A LEGAL OBLIGATION.
5 (PAUSE IN PROCEEDINGS.)
6 THE COURT: WELL, FROM AN ANTITRUST POINT OF VIEW,
7 WHEN THE -- I WAS GOING TO SAY WHEN THE DEPARTMENT APPROVED
8 THIS JOINT OPERATING AGREEMENT, BUT THE DEPARTMENT DID NOT, IN
9 FACT, APPROVE THIS JOINT OPERATING AGREEMENT SINCE IT PREDATED
10 THE NEWSPAPER PRESERVATION ACT. BUT THERE WAS AN IMPLICIT
11 ENDORSEMENT OF THE JOINT OPERATING AGREEMENT WHEN THE NEWSPAPER
12 PRESERVATION ACT CAME INTO EFFECT, WHICH IS TANTAMOUNT TO THE
13 DEPARTMENT GIVING THEIR BLESSING TO THE JOINT OPERATING
14 AGREEMENT.
15 WHEN THAT OCCURS, AS A LEGAL MATTER, WHAT DOES THAT
16 ENDORSEMENT ENDORSE? THE WHOLE CONTRACT WITH ALL OF ITS
17 PROVISIONS, THE TERMINATION PROVISIONS AND EVERYTHING, OR IS IT
18 SIMPLY AN APPROVAL OF A JOINT OPERATING AGREEMENT FOR SUCH
19 PERIOD OF TIME AS IT IS ECONOMICALLY REASONABLE FOR THE PARTIES
20 TO CONDUCT THEIR AFFAIRS UNDER THAT ARRANGEMENT?
21 MR. ROSCH: WELL, YOUR HONOR, I BELIEVE THAT, AGAIN,
22 SPEAKING SIMPLY FOR MY CLIENT, WE HAVE CONSIDERED IT TO BE THE
23 FORMER; THAT IS TO SAY, THAT IN THE CASE OF -- I'M SORRY, GO
24 AHEAD.
25 THE COURT: AND IF I UNDERSTAND THE TERMINATION
1391
1 PROVISIONS HERE, THEY'RE VERY SPARSE UNLESS THEY'RE TUCKED AWAY
2 IN SOME OTHER PART OF THE AGREEMENT THAT I HAVEN'T FOCUSED ON,
3 BUT THOSE TERMINATION PROVISIONS IN THIS CONTRACT, IF MEMORY
4 SERVES CORRECT, SIMPLY CONTEMPLATE THAT AT THE END OF THE JOINT
5 OPERATING AGREEMENT TERM, THE PARTIES WILL DIVIDE THE ASSETS
6 AND EACH ENGAGE IN THE NEWSPAPER BUSINESS.
7 IS THAT A FAIR INTERPRETATION OF THE TERMINATION
8 PROVISIONS?
9 MR. ROSCH: ACTUALLY, YOUR HONOR, I DON'T EVEN THINK
10 THAT IT PROVIDES THAT EACH WILL PARTICIPATE IN THE NEWSPAPER
11 BUSINESS. I BELIEVE WHAT THE TERMINATION PROVISION SAYS IS
12 THAT THE DIVISION OF ASSETS SHALL BE SUCH THAT IT WILL ENABLE
13 EACH PARTY, IF IT CHOOSES, TO DO SO. AND I BELIEVE THE
14 TESTIMONY OF MR. SIAS WAS THAT THAT'S JUST FINE; BUT THE FACT
15 OF THE MATTER IS, THAT THE ASSETS CAN'T BE USED AS A PRACTICAL
16 MATTER TO PUBLISH TWO NEWSPAPERS. IT JUST SIMPLY CANNOT BE
17 DONE, AT LEAST ON AN A.M. BASIS.
18 THE COURT: TO BE SURE -- I'LL ACCEPT THAT AS A
19 FACT. I DON'T BELIEVE THAT'S A MATTER IN CONTEST HERE. BUT
20 SURELY THE ASSETS COULD BE DIVIDED.
21 MR. ROSCH: I BEG YOUR PARDON?
22 THE COURT: SURELY THE ASSETS COULD BE DIVIDED
23 BETWEEN THE PARTIES IN SOME FASHION OR OTHER.
24 MR. ROSCH: YES. YES, THEY CAN BE, AND I THINK
25 THAT'S THE PROBLEM, THAT ONE PARTY OR THE OTHER CAN REALLY HOLD
1392
1 THE OTHER PARTY UP BECAUSE THE PARTY WHO'S GOING -- WHO WISHES
2 TO USE THOSE ASSETS TO PUBLISH IN THE MORNING IS GOING TO NEED
3 THE OTHER HALF AND THE OTHER PARTY IS IN A POSITION TO MAKE
4 THEM PAY VERY DEARLY FOR THAT.
5 THE COURT: AT THE END OF THE JOINT OPERATING
6 AGREEMENT?
7 MR. ROSCH: WELL, ACTUALLY PROBABLY REALISTICALLY IN
8 ADVANCE, BECAUSE, AS MR. SIAS SAID, IF, AND TO THE EXTENT THAT
9 A REALISTIC PRICE CAN'T BE STRUCK, THEN TO THAT EXTENT, YOU
10 WANT TO REDUCE THE BARGAINING POWER THAT THE OTHER PARTY HAS TO
11 HOLD YOU UP BY LOOKING FOR ALTERNATIVE ASSETS. AND IN HIS VIEW
12 THAT IS EXACTLY WHAT HE FELT THE HEARSTS WERE DOING.
13 THE COURT: I'M SORRY?
14 MR. ROSCH: IN HIS VIEW, HE FELT THAT THAT WAS WHAT
15 THE HEARSTS' SABER RATTLING WAS ABOUT.
16 THE COURT: THERE WAS, I GATHER FROM THE EVIDENCE
17 THAT'S BEEN PRESENTED, A GOOD DEAL OF SABER RATTLING ON BOTH
18 SIDES THERE.
19 MR. ROSCH: WELL, IT WASN'T ON OUR SIDE, YOUR HONOR.
20 THE CHRONICLE INTENDED TO PUBLISH AS AN A.M. NEWSPAPER NO
21 MATTER WHAT, AND THAT WAS NOT SABER RATTLING. AND, OF COURSE,
22 THAT WAS REAL EASY FOR US TO SAY BECAUSE WE HAD THE FOUR-TO --
23 MORE THAN FOUR-TO-ONE ADVANTAGE. THERE WAS NEVER ANY DOUBT IN
24 THE CHRONICLE'S MIND THAT -- FRANKLY, THAT HEARST WOULD EVER
25 COMPETE POST-JOA FOR THAT REASON; BUT THAT IF IT DID, THAT IT
1393
1 WOULD BE CRUSHED PROMPTLY.
2 THE COURT: NOW, THERE HAVE BEEN SEVERAL OF THESE
3 JOINT OPERATING AGREEMENTS THAT HAVE BEEN TERMINATED PRIOR TO
4 THE EXPIRATION DATE.
5 MR. ROSCH: CORRECT, YOUR HONOR.
6 THE COURT: WHAT WERE THE CIRCUMSTANCES UNDER WHICH
7 THOSE EARLY TERMINATIONS WERE MADE? WAS THAT -- WAS EACH OF
8 THOSE A TERMINATION BY AGREEMENT OF THE PARTIES, OR HOW WAS THE
9 TERMINATION CARRIED OUT?
10 MR. ROSCH: YOUR HONOR, I WOULDN'T PRETEND TO KNOW
11 ABOUT ALL OF THEM. I BELIEVE MY COLLEAGUE, MR. CONNELL, IS THE
12 EXPERT IN THAT AREA; BUT I ALSO BELIEVE THAT DR. ROSSE IS AS
13 WELL, AND PERHAPS HE CAN ENLIGHTEN THE COURT MORE ON THAT
14 SCORE.
15 I DO BELIEVE THAT IN THE CASE OF THE TWO, THAT THE
16 DIVISION AS SPOKEN TO PUBLICLY, THAT THOSE WERE AGREEMENTS;
17 THAT IS TO SAY, ST. LOUIS AND FRANKLIN COUNTY.
18 THE COURT: FRANKLIN.
19 (PAUSE IN PROCEEDINGS.)
20 THE COURT: I GATHER, TOO, FROM YOUR POINT OF VIEW,
21 THE CHRONICLE'S POINT OF VIEW -- WELL, LET ME ASK IT MORE
22 DIRECTLY.
23 WHAT EFFECT SHOULD THE FANG TRANSACTION HAVE UPON
24 THE ANTITRUST ANALYSIS? DOES IT HAVE ANY EFFECT AT ALL?
25 MR. ROSCH: WELL, YOUR HONOR, I MUST TELL YOU IN ALL
1394
1 CANDOR I DON'T BELIEVE THAT IT DOES. I BELIEVE, AS A MATTER OF
2 ANTITRUST LAW, THAT THIS TRANSACTION SHOULD BE ANALYZED ON THE
3 BASIS THAT THE EXAMINER IS A FAILING COMPANY, FAILING
4 ENTERPRISE, AND THAT IT COULD BE CLOSED FOR THAT REASON; AND,
5 INDEED, THERE IS A VERY STRONG ARGUMENT THAT ALLOCATIVE
6 EFFICIENCY WOULD BE SERVED BY THAT.
7 THE ONE THING THAT SEEMS TO ME THAT IS ABSOLUTELY
8 CLEAR, THOUGH, IS THAT THE FANG TRANSACTION -- IF IT IS NOT
9 CLOSED, THEN THE FANG TRANSACTION IS THE NEXT BEST SUBSTITUTE.
10 AND THE REASON THAT I SAY THAT IS AS FOLLOWS:
11 THE SUBSIDY IN THAT CASE WILL BE UP TO $66 MILLION.
12 YOU'VE HEARD FROM MR. REILLY'S EXPERTS THAT IF THE JOA WERE TO
13 RUN ITS COURSE AND THE EXAMINER WERE TO REMAIN IN BUSINESS AS A
14 STAND -- I'M SORRY, EITHER AS PART OF THE JOA OR AS A
15 STAND-ALONE BUSINESS AS A METROPOLITAN DAILY NEWSPAPER, THE
16 SUBSIDY WOULD BE IN THE NATURE OF $250 MILLION.
17 I DON'T -- AS AN ANTITRUST LAWYER, I DON'T LIKE THE
18 IDEA OF A SUBSIDY AT ALL; BUT IN MY MIND, $66 MILLION BEATS
19 $250 MILLION. AND THE BALANCE, AND THIS IS -- AGAIN, IT'S
20 SPEAKING AS AN ANTITRUST LAWYER --
21 THE COURT: $184 MILLION BETTER.
22 MR. ROSCH: YEAH, $184 MILLION THAT CAN BE --
23 THE COURT: OR LESS BETTER.
24 MR. ROSCH: CORRECT, THAT CAN BE PUT INTO MAKING THE
25 CHRONICLE A SUPERLATIVE NEWSPAPER. AND I THINK THAT'S WHAT THE
1395
1 ANTITRUST LAWS ARE ALL ABOUT.
2 AND THE OTHER THING THAT WILL HAPPEN, QUITE FRANKLY,
3 IS WHAT MR. WEAVER SAID IN RESPONSE TO YOUR HONOR'S QUESTIONS;
4 AND THAT IS, THAT AT LEAST FOR THE NEXT THREE YEARS, THERE WILL
5 BE, AND ONE CAN QUIBBLE ABOUT THE QUALITY OF THE NEW EXAMINER
6 VOICE, I DON'T KNOW HOW I WOULD COME OUT ON THAT ONE, BUT ONE
7 THING IS CLEAR, AND THAT IS THAT AT LEAST FOR THE NEXT THREE
8 YEARS, THERE WILL BE ECONOMIC COMPETITION FROM THAT CORRIDOR
9 WHICH HAS NOT EXISTED IN THE PAST.
10 NOW, I HAPPEN TO THINK THAT THAT ADDITIONAL ECONOMIC
11 COMPETITION IS NOT HUGELY CONSEQUENTIAL BECAUSE I BELIEVE THAT
12 THERE ARE ENOUGH COMPETITIVE FORCES OPERATING ON THE CHRONICLE
13 THAT REGARDLESS OF WHETHER IT WERE CLOSED OR MR. FANG OPERATES
14 THIS NEW EXAMINER, THE CHRONICLE WOULD BE DISCIPLINED.
15 BUT FROM MY PERSPECTIVE AS AN ANTITRUST LAWYER, IT
16 DOES SEEM TO ME THAT IT IS THE LESSER OF THE TWO EVILS.
17 THE COURT: BUT YOU ACKNOWLEDGE THE ALLOCATIVE
18 PROBLEMS WITH A NEGATIVE PRICE FOR THAT TRANSACTION?
19 MR. ROSCH: MOST ASSUREDLY, YOUR HONOR.
20 THE COURT: ALL RIGHT. THANK YOU, MR. ROSCH.
21 MR. ROSCH: THANK YOU, YOUR HONOR. I APPRECIATE THE
22 OPPORTUNITY.
23 THE COURT: VERY WELL. LET'S SEE, MR. HALLING, ARE
24 YOU GOING TO BE LEADING OFF WITH THE FIRST WITNESS?
25 MR. HALLING: IF IT PLEASE THE COURT, WE WOULD CALL
1396
1 STEVE FALK.
2 THE COURT: VERY WELL.
3 (PAUSE IN PROCEEDINGS.)
4 THE CLERK: PLEASE RAISE YOUR RIGHT HAND TO BE
5 SWORN.
6 STEVEN FALK,
7 CALLED AS A WITNESS FOR THE DEFENDANT, HAVING BEEN DULY SWORN,
8 TESTIFIED AS FOLLOWS:
9 THE CLERK: THANK YOU. PLEASE BE SEATED.
10 PLEASE STATE YOUR FULL NAME AND SPELL YOUR LAST
11 NAME.
12 THE WITNESS: STEVEN, MIDDLE INITIAL B AS IN BOY,
13 FALK, F-A-L-K.
14 DIRECT EXAMINATION
15 BY MR. HALLING:
16 Q. WHAT'S YOUR CURRENT POSITION, MR. FALK?
17 A. PRESIDENT AND CEO OF THE SAN FRANCISCO NEWSPAPER AGENCY.
18 Q. AND FOR HOW LONG A PERIOD OF TIME HAVE YOU HELD THAT
19 POSITION?
20 A. A LITTLE MORE THAN THREE YEARS.
21 Q. AND WHAT WAS YOUR EMPLOYMENT PRIOR TO THAT?
22 A. PRIOR TO THE PRESIDENT/CEO POSITION, I WAS SENIOR VICE
23 PRESIDENT SALES AND MARKETING FOR THE NEWSPAPER AGENCY.
24 Q. AND HOW LONG DID YOU HOLD THAT POSITION?
25 A. APPROXIMATELY THREE YEARS.
1397
1 Q. AND WERE YOU EMPLOYED PRIOR TO THAT AT THE AGENCY?
2 A. YES. I JOINED THE AGENCY IN 1987 AS CIRCULATION DIRECTOR
3 FOR THE CHRONICLE.
4 Q. AND THEN YOU BECAME VP OF CIRCULATION FOR BOTH PAPERS IN
5 '93?
6 A. VP OF CIRCULATION FOR A FEW MONTHS IN '93, FOLLOWED BY
7 SALES AND MARKETING.
8 Q. CAN YOU BRIEFLY SUMMARIZE YOUR EXPERIENCE IN THE NEWSPAPER
9 BUSINESS PRIOR TO JOINING THE AGENCY IN 1987?
10 A. PRIOR TO 19 -- MOST -- THE MOST RECENT POSITION PRIOR TO
11 1987 WAS VICE PRESIDENT CIRCULATION FOR THE GANNETT NEWSPAPERS
12 IN WHITE PLAINS, NEW YORK. PRIOR TO SEVERAL YEARS WITH
13 GANNETT, I WAS -- I HAD VARIOUS ADVERTISING, CIRCULATION AND
14 MANAGEMENT POSITIONS IN NEWSPAPERS IN OHIO, PENNSYLVANIA AND
15 NEW YORK.
16 Q. WHEN DID YOU FIRST GET STARTED IN THE NEWSPAPER BUSINESS?
17 A. I STARTED IN THE BUSINESS AT THE AGE OF 12 AS A NEWSPAPER
18 CARRIER.
19 Q. I'D LIKE TO DIRECT YOUR ATTENTION, IF I COULD, TO EXHIBIT
20 982, WHICH IS IN EVIDENCE. THE COVER SAYS, "STRATEGIC
21 MARKETING PLAN 2000." DO YOU HAVE THAT THERE?
22 A. YES, I DO.
23 Q. CAN YOU IDENTIFY THIS DOCUMENT, PLEASE?
24 A. THIS WAS OUR -- OR IS OUR STRATEGIC SALES AND MARKETING
25 PLAN FOR THE NEWSPAPER AGENCY PREPARED AS PART OF OUR BUDGET
1398
1 PREPARATIONS FOR THE YEAR 2000.
2 Q. WHAT ROLE DID YOU HAVE IN CONNECTION WITH THE PREPARATION
3 OF THIS DOCUMENT?
4 A. I INSTRUCTED THAT THIS DOCUMENT BE DONE AND HAVE EVER
5 SINCE I BECAME PRESIDENT OF THE NEWSPAPER AGENCY. THIS IS --
6 THIS IS THE SALES AND MARKETING PLANNING DOCUMENT ON WHICH OUR
7 OPERATING BUDGET IS BUILT.
8 Q. AND CAN YOU JUST EXPLAIN TO THE COURT WHAT DO YOU MEAN BY
9 "UPON WHICH OUR OPERATING BUDGET IS BUILT"?
10 A. WELL, I HAVE A -- I HAVE A STRONG BELIEF IN THIS BUSINESS,
11 OR ANY COMPETITIVE BUSINESS, THAT, YOU KNOW, YOU HAVE TO START
12 OFF WITH A SALES AND MARKETING STRATEGIC PLAN BEFORE YOU CAN
13 BEGIN TO PLAN HOW TO SPEND MONEY OR ALLOCATE EXPENSES TO ONE
14 PROGRAM VERSUS ANOTHER.
15 SO THIS IS -- THIS IS A SALES AND MARKETING BASIS ON
16 WHICH WE BUILD THE BUDGET.
17 Q. I'D LIKE TO DIRECT YOUR ATTENTION, PLEASE, TO THE FIRST
18 PAGE. IT APPEARS THAT THE FIRST HEADING IS "1999 IN REVIEW."
19 AND THEN IN THAT FIRST SECTION, LET ME JUST DIRECT YOU, IF I
20 COULD, TO THE SECOND PAGE UNDER THE HEADING "1999 IN REVIEW,"
21 AND SPECIFICALLY TO THE FIRST SENTENCE OF THE FIRST PARAGRAPH
22 ON PAGE 2. THE SENTENCE READS:
23 "COMPETITION IS FIERCE FOR AUDIENCE AND
24 ADVERTISING SHARE."
25 DO YOU SEE THAT?
1399
1 A. YES, I DO.
2 Q. WHAT DOES THAT MEAN?
3 A. WELL, IT MEANS EXACTLY WHAT IT SAYS. WE ARE SITTING IN
4 THE MIDDLE OF, IN MY OPINION, ONE OF THE MOST COMPETITIVE NOT
5 ONLY NEWSPAPER MARKETS BUT MEDIA MARKETS IN THE COUNTRY, AND
6 COMPETITION IS FIERCE FOR BOTH AUDIENCE, FOR EYEBALLS AS
7 SOMEONE REFERRED TO IT EARLIER, AND FOR ADVERTISING SHARE.
8 Q. WHAT COMPETITION ARE WE TALKING ABOUT?
9 A. COMPETITION IN THE BAY AREA IS BIG AND IT'S BROAD. MOST
10 DIRECTLY, WE COMPETE WITH 12 OF THE BEST SUBURBAN DAILY
11 NEWSPAPERS OWNED BY SOME OF THE LARGEST MEDIA COMPANIES IN THE
12 COUNTRY. WE CERTAINLY COMPETE FOR THE SUBURBAN PAPERS FOR BOTH
13 ADVERTISING DOLLARS AND READERS.
14 BUT COMPETITION GOES FAR BEYOND NEWSPAPERS PER SE.
15 WE ARE, IN A VERY REAL SENSE, COMPETING FOR ADVERTISING DOLLARS
16 AND CONSUMERS' TIME WITH DOZENS OF TELEVISION STATIONS, CABLE
17 TV STATIONS, RADIO STATIONS, AND YOU CAN'T EXCLUDE THE
18 INTERNET, WHICH, AT LEAST AS OF TODAY, IS FREE AND IT'S A
19 GROWING SOURCE OF NEWS AND INFORMATION FOR CONSUMERS.
20 Q. DIRECTING YOUR ATTENTION FURTHER DOWN ON PAGE 2, THERE'S A
21 PIE CHART IN THE FIRST COLUMN. I THINK IT REFERS TO APPENDIX
22 A5. DO YOU SEE THAT?
23 A. YES, I DO.
24 Q. AND IN APPENDIX A5 THERE'S A LARGER VERSION OF THE CHART.
25 CAN YOU TELL US WHY THAT CHART IS INCLUDED HERE IN YOUR
1400
1 MARKETING PLAN?
2 A. WE PUT THIS CHART IN THE SALES AND MARKETING PLANS
3 SPECIFICALLY TO IMPRESS UPON THE OWNERS OF THE NEWSPAPERS THAT
4 THIS IS A VERY COMPETITIVE MEDIA MARKET. AS THIS CHART SHOWS,
5 WE COMPETE FOR $1.3 BILLION OF MEDIA EXPENDITURES. NEWSPAPERS
6 GET A PIECE, TV GETS A BIG PIECE, DIRECT MAIL GETS A VERY LARGE
7 PIECE. THIS IS JUST MEANT TO BE A GRAPHIC DEPICTION OF THAT
8 VERY COMPETITIVE, OVERALL MEDIA SITUATION.
9 Q. I THINK YOU REFERENCED IN YOUR LAST ANSWER THAT THERE WAS
10 SOME PRESENTATION THAT'S ASSOCIATED WITH THIS PLAN. WHAT'S
11 THAT?
12 A. WE PRESENT EVERY YEAR TO THE PRINCIPALS OF BOTH CHRONICLE
13 PUBLISHING AND HEARST CORPORATION, ACTUALLY TO THE BOARD
14 MEMBERS WHO ARE ON THE BOARD OF THE NEWSPAPER AGENCY, ALONG
15 WITH EXECUTIVES OF BOTH COMPANIES, NOT ONLY THE STRATEGIC SALES
16 AND MARKETING PLAN BUT THE OPERATING BUDGET THAT GOES WITH IT.
17 THAT'S DONE ON AN ANNUAL BASIS.
18 Q. NOW, WITH RESPECT TO THIS CHART ON A5 THAT YOU INCLUDED IN
19 THE MARKETING PLAN, HOW DOES THIS COMPARE WITH PRIOR YEARS?
20 A. WELL, IN THE GENERAL MAKE-UP OF THE CHART, THERE AREN'T
21 MANY SIGNIFICANT CHANGES. UNFORTUNATELY, IF YOU WOULD ROLL
22 BACK THE CLOCK ONE YEAR EARLIER, NEWSPAPER SHARE WAS A LITTLE
23 BIT HIGHER AND DIRECT MAIL WAS A LITTLE BIT LOWER. SO WE
24 HAVE -- YOU KNOW, WE HAVE SOME INCREASING COMPETITION ON THE
25 DIRECT MAIL SIDE FOR ADVERTISING DOLLARS.
1401
1 BUT, YOU KNOW, FORTUNATELY NEWSPAPERS ACCOUNT FOR
2 28 PERCENT OF THE TOTAL PIE. THAT'S SLIPPING, BUT IT'S STILL
3 THE HIGHEST SHARE.
4 Q. CAN YOU DESCRIBE WHAT YOU MEAN BY DIRECT MAIL? WHAT TYPE
5 OF AN ADVERTISING VEHICLE IS THAT?
6 A. WELL, DIRECT MAIL IS DIRECT MAIL. THEY HATE TO HEAR
7 ANYONE USE THE TERM "JUNK MAIL," BUT SOME PEOPLE REFER TO
8 DIRECT MAIL AS JUNK MAIL. IT'S, YOU KNOW, ADVERTISING THAT
9 COMES THROUGH THE MAIL.
10 Q. LET ME DIRECT YOUR ATTENTION BACK TO PAGE 2 OF THE
11 SUMMARY. ON THE RIGHT-HAND SIDE BETWEEN THE TWO PIE CHARTS, DO
12 YOU SEE THAT?
13 A. YES.
14 Q. IT STARTS OUT:
15 "DESPITE THE POOR PERFORMANCE IN THE
16 NEWSPAPER CATEGORY," THEN THE NEXT SENTENCE
17 READS:
18 "THIS MAY SEEM A SURPRISE GIVEN INCREASED
19 FOCUS OF KNIGHT-RIDDER ON THE SF DMA AND THE
20 PRICE PRESSURE OF THE ALAMEDA NEWSPAPER GROUP."
21 FIRST, CAN YOU TELL US WHAT'S THE SF DMA?
22 A. THE SAN FRANCISCO -- DMA STANDS FOR THE DESIGNATED MARKET
23 AREA. THE SAN FRANCISCO DMA IS THE 11-AND-A-HALF-COUNTY
24 METROPOLITAN AREA.
25 Q. IS THAT A STATISTICAL MEASURE THAT YOU USE IN YOUR
1402
1 BUSINESS?
2 A. YES, IT IS.
3 Q. THE SENTENCE THAT WE'VE HIGHLIGHTED FOLLOWS A REFERENCE I
4 SEE TO CHRONICLE AND EXAMINER INCREASING THEIR SHARE OF FIELD
5 SLIGHTLY. I ASSUME THAT'S FROM YEAR TO YEAR?
6 A. YES, THAT'S YEAR TO YEAR.
7 Q. THE SENTENCE THAT'S HIGHLIGHTED TALKS ABOUT THE INCREASED
8 FOCUS OF KNIGHT-RIDDER. WHAT'S THAT?
9 A. THE WHOLE PURPOSE OF THIS PARAGRAPH WAS, FIRST OF ALL, A
10 LITTLE BIT JUST TO BRAG ABOUT OUR SUCCESS. WE DID HAVE A VERY
11 GOOD YEAR IN THE PREVIOUS YEAR; AND EVEN THOUGH THE NEWSPAPER
12 SHARE OF THE MARKET DROPPED FROM 30 PERCENT TO 28 PERCENT OF
13 MEDIA EXPENDITURES, THE SAN FRANCISCO NEWSPAPER AGENCY ACTUALLY
14 IMPROVED.
15 AND THE SURPRISING PART ABOUT THAT IS WITH THE FOCUS
16 OF KNIGHT-RIDDER, WITH THE PURCHASE OF THE CONTRA COSTA TIMES
17 BY KNIGHT-RIDDER, YOU KNOW, THEIR COMBINED CIRCULATION NOW
18 BETWEEN THE TWO NEWSPAPERS IS DANGEROUSLY CLOSE TO OUR
19 CIRCULATION LEVEL. AND SO AS A RESULT, WE ARE IN DIRECT
20 COMPETITION WITH THEIR COMBINED CIRCULATION FOR NATIONAL
21 ADVERTISING.
22 Q. WHAT PART OF YOUR ADVERTISING REVENUE APPROXIMATELY IS
23 MADE UP OF NATIONAL ADVERTISING?
24 A. OF OUR 350 MILLION IN AD REVENUE, ABOUT 115 MILLION IS
25 NATIONAL ADVERTISING.
1403
1 Q. ALL RIGHT. THE SENTENCE CONTINUES WITH A REFERENCE TO THE
2 PRICE PRESSURE OF THE ALAMEDA NEWSPAPER GROUP. WHAT'S THAT A
3 REFERENCE TO?
4 A. WELL, PRICE -- ALAMEDA NEWSPAPER GROUP HAS A LONG-STANDING
5 REPUTATION OF, YOU KNOW, CUTTING PRICES AND CUTTING RATES. I
6 THINK RIGHT NOW YOU CAN GET A YEAR'S SUBSCRIPTION TO THE
7 OAKLAND TRIBUNE FOR $12 UNDER THE RIGHT PROMOTION. SO THERE'S
8 JUST A LOT OF PRICE PRESSURE IN THE EAST BAY FROM THE ALAMEDA
9 NEWSPAPER GROUP.
10 Q. WHO OWNS THE ALAMEDA NEWSPAPER GROUP?
11 A. I THINK THE CORPORATE NAME IS MEDIA NEWS CORP., DEAN
12 SINGLETON.
13 Q. LET ME DIRECT YOUR ATTENTION, IF I COULD, TO PAGE 5 OF THE
14 MARKETING PLAN. THE HEADING IS "SWOT ANALYSIS," S-W-O-T. WHAT
15 DOES THAT STAND FOR?
16 A. WELL, THE WORD SWOT STANDS FOR STRENGTHS, WEAKNESSES,
17 OPPORTUNITIES AND THREATS. IT'S A VERY TRADITIONAL WAY THAT
18 BUSINESSES DISSECT THEIR MARKETING PLANS AND TALK ABOUT THOSE
19 FOUR THINGS, STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
20 Q. ALL RIGHT. AND I SEE RIGHT UNDER THERE YOU START WITH
21 STRENGTHS, AND IN THE FIRST PARAGRAPH, YOU SAY IN THE FIRST
22 SENTENCE:
23 "THE POTENTIAL END OF THE JOA SHOULD
24 INCREASE THE COMPETITIVENESS OF OUR NEWSPAPERS
25 BY CONSOLIDATING OUR RESOURCES AND FOCUSING ON
1404
1 MARKETING EFFORTS."
2 CAN YOU EXPLAIN HOW THE END OF THE JOA WOULD BE A
3 STRENGTH IN TERMS OF INCREASING COMPETITIVENESS?
4 A. THE ANSWER IS LENGTHY, BUT THE SHORT VERSION OF THE
5 ANSWER, THE JOINT OPERATING AGREEMENT AND SAN FRANCISCO
6 NEWSPAPER AGENCY TODAY IS A VERY CUMBERSOME, EXPENSIVE
7 ORGANIZATION. WE HAVE TWO OF LOTS OF THINGS. WE HAVE TWO
8 DISTRIBUTION SYSTEMS. WE HAVE TWO CARRIER FORCES. WE HAVE TWO
9 SETS OF TRUCKS. WE HAVE TWO PRESS ROOM CREWS. WE HAVE TWO
10 MAIL ROOM CREWS. WE SPEND LOTS OF MONEY. AND UNFORTUNATELY WE
11 DON'T DO THE THINGS WE SHOULD DO AS WELL AS WE SHOULD DO THEM.
12 OUR CUSTOMER SERVICE ISN'T QUITE AS GOOD AS IT SHOULD BE. OUR
13 SALES AND MARKETING EFFORTS AREN'T QUITE AS GOOD AS THEY SHOULD
14 BE. OUR PROMOTION EFFORTS AREN'T ANYWHERE CLOSE TO BEING AS
15 GOOD AS THEY SHOULD BE. IN MY OPINION, THE CONTENT OF THE
16 PAPERS ISN'T AS GOOD AS IT SHOULD BE OR COULD BE.
17 THE SUNDAY NEWSPAPER, FOR INSTANCE, DOES NOT HAVE A
18 SINGLE INCH OF LOCAL NEWS, AND WE FIGHT THIS BATTLE IN THE
19 SUBURBAN MARKETPLACE WITH THE SUNDAY NEWSPAPER WITHOUT ANY
20 LOCAL NEWS BECAUSE THE EXAMINER THAT DOES THE MAIN NEWS
21 SECTIONS ON SUNDAY DOESN'T HAVE ANY LOCAL BUREAUS.
22 SO --
23 THE COURT: WHEN YOU SAY "LOCAL NEWS," YOU MEAN
24 OTHER THAN SAN FRANCISCO?
25 THE WITNESS: YES, LOCAL, SUBURBAN NEWS IN THE
1405
1 MARKETS IN WHICH WE HAVE OTHER SUBURBAN COMPETITORS.
2 THE COURT: BUT LOCAL SAN FRANCISCO NEWS DOES APPEAR
3 IN THE SUNDAY PAPER?
4 THE WITNESS: YES, IT DOES. YES, IT DOES. I HAPPEN
5 TO LIVE IN THE SUBURBS AND REALIZE THAT WE DON'T DO A VERY GOOD
6 JOB THERE.
7 THE COURT: I SEE, OKAY.
8 BY MR. HALLING:
9 Q. WHAT PERCENTAGE, APPROXIMATELY, OF THE CHRONICLE'S
10 CIRCULATION IS OUTSIDE THE CITY OF SAN FRANCISCO?
11 A. 80 PERCENT OF THE CHRONICLE'S CIRCULATION IS OUTSIDE THE
12 CITY AND COUNTY OF SAN FRANCISCO.
13 Q. WHAT PERCENTAGE OF SUNDAY SUBSCRIBERS ARE ALSO CHRONICLE
14 DAILY SUBSCRIBERS?
15 A. 80 PERCENT PLUS OF SUNDAY SUBSCRIBERS ARE LINKED TO
16 CHRONICLE SUBSCRIPTIONS.
17 Q. SO WHY WOULD THIS BE A STRENGTH? WHY WOULD THIS BE LISTED
18 AS A STRENGTH?
19 A. WELL, THE STRENGTH PART COMES IN BECAUSE GIVEN THE END OF
20 THE JOA AND GIVEN A LIMITED POOL OF RESOURCES, WE WILL THEN BE
21 ABLE TO CONCENTRATE THOSE RESOURCES PRESUMABLY TO CREATE A MORE
22 LOCAL SUNDAY NEWSPAPER FOR THE SUBURBS, A BETTER SALES AND
23 MARKETING PROGRAM FOR THE PAPERS, A BETTER DISTRIBUTION SYSTEM,
24 BETTER DELIVERY SERVICE BECAUSE THE EXPENSE BURDEN OF HAVING
25 TWO OF EVERYTHING WILL BE GONE.
1406
1 Q. LET ME DIRECT YOUR ATTENTION TO THE SECOND COLUMN STILL ON
2 PAGE 5. NOW WE'RE STILL UNDER THE CATEGORY "STRENGTHS," BUT
3 THE FIRST SENTENCE OF THE LAST PARAGRAPH READS:
4 "DUPLICATION BETWEEN THE CHRONICLE AND THE
5 EXAMINER IS HIGH."
6 WHY IS THAT SOMETHING THAT IS BEING PRESENTED HERE
7 UNDER THE SECTION CALLED "STRENGTHS"?
8 A. WELL, DUPLICATION BETWEEN THE PAPERS IS HIGH. 60 PERCENT
9 OF TODAY'S EXAMINER READERS READ THE CHRONICLE; AND WHILE THERE
10 ARE CERTAINLY SOME BENEFITS OF DUPLICATION, FOR THE MOST PART
11 JUST DUPLICATION MEANS ADDITIONAL EXPENSE BURDEN. IT'S -- YOU
12 KNOW, WE'RE REACHING THE SAME READER TWICE, SO YOU HAVE THE
13 ADDITIONAL EXPENSE OF NEWSPRINT, INK, DELIVERY.
14 SO IT'S UNDER "STRENGTH" BECAUSE, OBVIOUSLY, AT THE
15 END OF THE JOA WHEN THE JOA CEASES TO EXIST, THAT DUPLICATION
16 WILL DISAPPEAR.
17 Q. FURTHER DOWN IN THIS COLUMN THERE IS A HEADING
18 "WEAKNESSES." AND THEN THAT CONTINUES ON PAGE 6, AND LET ME
19 DRAW YOUR ATTENTION TO THE FIRST FULL PARAGRAPH ON PAGE 6.
20 ABOVE THE CHART IT SAYS:
21 "READERSHIP AND CIRCULATION FOR THE SUNDAY
22 NEWSPAPER AND DAILY COMBINATION ARE IN DECLINE."
23 HAS THAT BEEN A PROBLEM?
24 A. UNFORTUNATELY, YES. CIRCULATION, AS THIS STATISTIC
25 ILLUSTRATES, CIRCULATION OVER THIS 10-YEAR PERIOD IS DOWN
1407
1 10 PERCENT.
2 MORE IMPORTANT IS IT'S DOWN 10 PERCENT IN THE FACE
3 OF VERY SIGNIFICANT COMPETITORS BEING FLAT OR UP IN THE SAME
4 PERIOD OF TIME.
5 Q. AND I GUESS THE SMALL CHART THERE IS REPLICATED ON A31?
6 A. YES, IN THE APPENDIX.
7 Q. AND WHY IS THIS CHART INCLUDED HERE UNDER THE HEADING
8 "WEAKNESSES"?
9 A. WELL, WE WERE TRYING TO POINT OUT, AND WE HAVE USED THE
10 CHARTS SIMILAR TO THIS FOR SEVERAL YEARS, YOU KNOW -- WE'RE
11 TRYING TO POINT OUT IN VERY SPECIFIC TERMS TO THE OWNERS OF
12 THESE TWO COMPANIES THAT CIRCULATION IS IN TROUBLE, CIRCULATION
13 IS DECLINING. AND TO THE EXTENT CIRCULATION SUPPORTS
14 ADVERTISING REVENUE, THAT GETS TO THE HEART OF THE ENTERPRISE.
15 THE COURT: EXCUSE ME, MR. HALLING.
16 THE AUDIENCE FOR THIS PUBLICATION AGAIN WAS WHO?
17 THE WITNESS: THIS IS OUR INTERNAL SALES AND
18 MARKETING PLAN PRESENTED TO THE PRINCIPALS, THE EXECUTIVES OF
19 HEARST CORPORATION AND CHRONICLE PUBLISHING COMPANY.
20 THE COURT: IT WAS NOT INTENDED FOR OUTSIDE
21 DISTRIBUTION?
22 THE WITNESS: NO, IT WAS NOT. WE CONSIDER THIS A
23 CONFIDENTIAL DOCUMENT BECAUSE WITHIN THIS DOCUMENT ARE ALL OF
24 OUR STRATEGIC PLANS FOR THE COMING YEAR.
25 THE COURT: GO AHEAD.
1408
1 BY MR. HALLING:
2 Q. LET ME DIRECT YOUR ATTENTION -- LET'S GO BACK TO PAGE 6.
3 TAKE A LOOK, IF YOU WOULD, AT SOME EXHIBITS THAT I HOPE YOU
4 HAVE THERE, 1165 --
5 A. YES, I DO.
6 Q. -- AND ALSO WHY DON'T YOU LOOK AT THE SAME TIME AT 1159,
7 '60 AND '61.
8 LET ME ASK YOU FIRST ABOUT 1165.
9 A. OKAY.
10 Q. CAN YOU IDENTIFY THIS DOCUMENT?
11 A. 1165 IS, AGAIN, A DEPICTION ON A GRAPH OF THE CIRCULATION
12 TRENDS FOR THE CHRONICLE, THE EXAMINER AND FOR THE SUNDAY
13 EXAMINER/CHRONICLE SINCE 1990.
14 Q. WAS THIS DOCUMENT PREPARED UNDER YOUR SUPERVISION?
15 A. IT WAS PREPARED AT MY REQUEST BY THE CIRCULATION
16 DEPARTMENT OF THE NEWSPAPER AGENCY, YES.
17 Q. DOES IT ACCURATELY REFLECT THE TRENDS IN CIRCULATION SHOWN
18 ON IT?
19 A. THE CIRCULATION POINTS THAT ARE CHARTED HERE ARE --
20 ACTUALLY ARE ANNUAL ABC-AUDITED NUMBERS SINCE 1990.
21 MR. HALLING: I WOULD OFFER EXHIBIT 1165.
22 MR. ALIOTO: NO OBJECTION, YOUR HONOR.
23 THE COURT: 1165 WILL BE ADMITTED.
24 (DEFENDANT'S EXHIBIT 1165
25 RECEIVED IN EVIDENCE)
1409
1 BY MR. HALLING:
2 Q. NOW, MR. FALK, LET ME DIRECT YOUR ATTENTION AT THE
3 EXHIBITS 1159, '60 AND '61. ARE THOSE MERELY COLOR VERSIONS OF
4 THE CHARTS ON 1165?
5 A. YES. THESE ARE COLOR REPRESENTATIONS OF THE SAME BAD
6 NEWS, UNFORTUNATELY.
7 Q. WELL, TAKE A LOOK AT 1159.
8 A. OKAY.
9 Q. WHICH THE HEADING ON THE DOCUMENT IS "ANNUAL AVERAGE
10 CHRONICLE NET PAID CIRCULATION." CAN YOU TELL ME WHAT THIS
11 REPRESENTS?
12 A. AGAIN, THESE ARE THE ANNUAL 12-MONTH AVERAGE CIRCULATION
13 POINTS. WE MEASURE OUR CIRCULATION, YOU KNOW, FOR A 12-MONTH
14 PERIOD ENDING SEPTEMBER 30TH, AND THE AUDIT BUREAU OF
15 CIRCULATION AUDITS THOSE NUMBERS AND RELEASES PUBLICLY THE
16 RESULTS OF THAT AUDIT, AND THESE ARE THOSE CIRCULATION LEVELS
17 SINCE 1990.
18 Q. THE TREND ISN'T VERY GOOD; IS IT?
19 A. NO.
20 Q. TAKE A LOOK, IF YOU WOULD, AT 1160.
21 A. (WITNESS EXAMINES DOCUMENT.)
22 Q. NOW, THE FIRST -- THE FIRST CHART WAS "AVERAGE CHRONICLE,"
23 AND THIS ONE IS HEADED "ANNUAL AVERAGE EXAMINER." DO YOU SEE
24 THAT?
25 A. YES. THIS IS THE EXAMINER.
1410
1 Q. AND WHAT DOES IT SHOW?
2 A. IT SHOWS THE SAME CIRCULATION MEASUREMENT POINTS,
3 OBVIOUSLY ON A DIFFERENT SCALE BECAUSE THE EXAMINER IS SMALLER,
4 FOR THE SAME PERIOD OF TIME. UNFORTUNATELY, IT'S SHOWING THE
5 SAME TREND.
6 Q. AND, FINALLY, TAKE A LOOK AT 1161, WHICH IS HEADED "ANNUAL
7 AVERAGE SUNDAY."
8 A. (WITNESS EXAMINES DOCUMENT.)
9 Q. AND CAN YOU TELL US WHAT THIS REPRESENTS?
10 A. AGAIN, IT'S THE SAME CIRCULATION AUDITED BY THE SAME FIRM.
11 THIS IS SPECIFICALLY FOR THE YEARLY AVERAGES, 52-WEEK AVERAGES,
12 FOR THE SUNDAY PAPER SINCE 1990.
13 Q. LET ME DIRECT YOUR ATTENTION BACK TO PAGE 6 OF THE
14 MARKETING PLAN. AND, AGAIN, WE'RE STILL UNDER THE HEADING
15 "WEAKNESSES." TAKE A LOOK AT THE FIRST FULL PARAGRAPH IN THE
16 RIGHT COLUMN. IT READS:
17 "PREPRINT ADVERTISING IS HIGHLY SENSITIVE TO
18 CIRCULATION DECLINES."
19 A. YES.
20 Q. CAN YOU EXPLAIN WHAT THAT MEANS?
21 A. PREPRINT ADVERTISING, FIRST OF ALL, ARE THE CIRCULARS, THE
22 PREPRINTED ADVERTISING MATERIAL THAT YOU MIGHT GET IN THE DAILY
23 AND SUNDAY NEWSPAPER, LIKE SEARS OR J. C. PENNEY. AND THIS
24 SIMPLY STATES THE OBVIOUS, THAT PREPRINT ADVERTISING IS NOT
25 ONLY HIGHLY SENSITIVE, IT'S DIRECTLY CORRELATED WITH
1411
1 CIRCULATION BECAUSE WE CHARGE FOR THE NUMBER OF PREPRINTS
2 INCLUDED IN THE NEWSPAPERS.
3 Q. THE NEXT SENTENCE HAS THE PHRASE "IF CPM'S CONTINUE
4 DECLINE." WHAT ARE CPM'S?
5 A. CPM STANDS FOR OUR AVERAGE COST PER THOUSAND. IT'S AN
6 ADVERTISING TERM. THE COST PER THOUSAND NEWSPAPERS.
7 Q. ALL RIGHT. FURTHER DOWN IN THE COLUMN, THE BEGINNING OF
8 THE NEXT PARAGRAPH SAYS:
9 "CURRENT PRESS CONFIGURATIONS ARE VERY
10 LIMITING."
11 AGAIN, WE'RE STILL UNDER THE HEADING IN YOUR
12 MARKETING PLAN OF "WEAKNESSES." WHAT DO YOU MEAN BY "PRESS
13 CONFIGURATIONS ARE VERY LIMITING"?
14 A. I GUESS THE EASIEST ANSWER IS EVEN THOUGH WE HAVE PRESSES
15 THAT PRINT GREAT-LOOKING COLOR, THEY'RE VERY SLOW. WE PRINT
16 18,000 COPIES PER HOUR ON AVERAGE. THE INDUSTRY STANDARD IS
17 DOUBLE THAT OR MORE.
18 Q. TAKE A LOOK, IF YOU WOULD, PLEASE, AT PAGE 8. WE'RE STILL
19 IN THE "SUMMARY" SECTION OF THE MARKETING PLAN. UNDER THE
20 HEADING "THREATS," AND THEN CONTINUE, IF YOU WOULD, PLEASE, ON
21 PAGE 9. I'D LIKE TO ASK YOU A QUESTION ABOUT A REFERENCE IN
22 THE SECOND FULL PARAGRAPH IN THE RIGHT COLUMN. IT SAYS:
23 "IT REMAINS TO BE SEEN WHAT IMPACT
24 KNIGHT-RIDDER'S PURCHASE OF THE HILLS
25 NEWSPAPERS, PAREN, CURRENTLY WEEKLIES OR TWICE
1412
1 WEEKLIES."
2 WHAT TRANSACTION ARE WE TALKING ABOUT HERE?
3 A. WELL, RECENTLY WITHIN THE PAST, I'M NOT SURE OF THE DATE,
4 18, 24 MONTHS, KNIGHT-RIDDER, IN ADDITION TO PURCHASING THE
5 CONTRA COSTA NEWSPAPERS, ALSO PURCHASED A GROUP OF WEEKLIES OR
6 TWICE WEEKLIES IN THE OAKLAND HILLS FORMERLY KNOWN AS THE HILLS
7 NEWSPAPERS.
8 AND THIS WAS JUST A STATEMENT. AGAIN, INTERNALLY WE
9 REFER TO KNIGHT-RIDDER AS THE EVIL EMPIRE, AND THEY'RE, YOU
10 KNOW, OBVIOUSLY GROWING VERY QUIETLY THROUGH THE BAY AREA. AND
11 THIS WAS JUST A COMMENT ABOUT, YOU KNOW, THIS IS JUST ANOTHER
12 KNIGHT-RIDDER ACQUISITION IN THE COMPETITIVE MIX.
13 THE COURT: WHAT ARE SOME OF THE HILLS NEWSPAPERS?
14 CAN YOU NAME ANY OF THE TITLES?
15 THE WITNESS: OFF THE TOP OF MY HEAD, THE
16 MONTCLARION COMES TO MIND. I THINK THAT'S ONE OF THE HILLS
17 NEWSPAPERS. I HATE TO MISSTATE THAT, BUT....
18 THE COURT: THANK YOU.
19 BY MR. HALLING:
20 Q. ON PAGE 17, IF WE CAN LEAVE THE SUMMARY FOR A MOMENT,
21 THERE'S A SECTION ENTITLED "CIRCULATION STRATEGIC PLAN." DO
22 YOU SEE THAT?
23 A. WHAT PAGE? I'M SORRY.
24 Q. 17.
25 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
1413
1 Q. IS THIS DOCUMENT ORGANIZED INTO SEPARATE CATEGORIES FOR
2 THE DIFFERENT PARTS OF THE BUSINESS?
3 A. THIS DOCUMENT, AS WE STARTED, IS AN EXECUTIVE OVERVIEW OF,
4 YOU KNOW, A LITTLE BIT OF THE HISTORY, A LITTLE BIT ABOUT THE
5 MARKET, A LITTLE BIT ABOUT OVERALL STRATEGIC INITIATIVES, AND
6 THEN IT GOES INTO ADVERTISING PLANS, CIRCULATION PLANS AND
7 MARKETING PLANS, YES.
8 Q. ALL RIGHT. THE SECOND PARAGRAPH UNDER THE EXECUTIVE
9 SUMMARY, THE FIRST SENTENCE READS:
10 "OUR MAIN FOCUS WILL BE ATTACKING OUR MAJOR
11 PRINT COMPETITION IN KEY AREAS WITHIN OUR
12 MARKETPLACE."
13 WHAT IS YOUR MARKETPLACE?
14 A. WELL, AGAIN, THE MARKETPLACE FOR THE SAN FRANCISCO
15 NEWSPAPER AGENCY IS THE 11-COUNTY SAN FRANCISCO DMA, THE BAY
16 AREA.
17 Q. LET ME DIRECT YOUR ATTENTION NOW TO EXHIBIT 1187. IT'S A
18 ONE-PAGE DOCUMENT PRESS RELEASE. THE HEADING IS, "SAN
19 FRANCISCO NEWSPAPER AGENCY UNDERTAKES MAJOR INITIATIVES." HAVE
20 YOU SEEN THIS BEFORE?
21 A. YES, I HAVE.
22 Q. CAN YOU IDENTIFY WHAT THIS DOCUMENT IS?
23 A. THIS IS A VERY RECENT PRESS RELEASE WE ISSUED ANNOUNCING
24 SEVERAL EDITORIAL IMPROVEMENTS TO THE NEWSPAPERS, THE
25 ANNOUNCEMENT ABOUT A NEW ZONED EDITORIAL AND ADVERTISING
1414
1 SECTION FOR BOTH PAPERS IN SAN FRANCISCO AND ALSO ANNOUNCED A
2 REDUCTION IN THE CHRONICLE NEWSSTAND PRICE.
3 MR. HALLING: YOUR HONOR, I WOULD OFFER EXHIBIT
4 1187.
5 MR. ALIOTO: NO OBJECTION.
6 THE COURT: VERY WELL. 1187 WILL BE ADMITTED.
7 (DEFENDANT'S EXHIBIT 1187
8 RECEIVED IN EVIDENCE)
9 BY MR. HALLING:
10 Q. CAN YOU DESCRIBE THE EVENTS THAT LED TO THE ISSUING OF
11 THIS PRESS RELEASE?
12 A. WELL, THIS PRESS RELEASE IS A CULMINATION OF SEVERAL
13 ISSUES AND SEVERAL STRATEGIC INITIATIVES, SOME OF WHICH ARE
14 OUTLINED IN THIS STRATEGIC MARKETING PLAN THAT WE JUST
15 REVIEWED, SOME OF WHICH HAVE BEEN TALKED ABOUT, YOU KNOW, SINCE
16 THE ISSUING OF THE STRATEGIC MARKETING PLAN.
17 Q. WAS THIS PRESS RELEASE ISSUED IN RESPONSE TO ANYTHING IN
18 PARTICULAR?
19 A. THE PRESS RELEASE WAS SIMPLY -- I MEAN, IT'S A COMMON
20 PRACTICE IN THE BUSINESS WHEN YOU HAVE BIG, NEW, EXCITING
21 EVENTS HAPPENING, LIKE IMPROVED BUSINESS SECTIONS OR ZONING, WE
22 ISSUE A PRESS RELEASE TO GET, YOU KNOW, EXCITEMENT OF NOT ONLY
23 CONSUMERS AND READERS, BUT ADVERTISERS.
24 Q. ALL RIGHT. LET ME DIRECT YOUR ATTENTION TO THE THIRD
25 PARAGRAPH. THERE'S A SENTENCE:
1415
1 "FALK," I ASSUME THAT'S YOU --
2 A. YES.
3 Q. "NOTED THAT THE PROMOTIONAL RESOURCES DEVOTED TO THESE
4 CAMPAIGNS REPRESENT THE BIGGEST PROMOTIONAL EXPENDITURES THE
5 SFNA HAS UNDERTAKEN IN RECENT YEARS."
6 IS THAT AN ACCURATE STATEMENT?
7 A. WE'RE GOING TO SPEND SEVERAL HUNDRED THOUSAND DOLLARS
8 PROMOTING ALL OF THESE INITIATIVES; AND, YES, TAKEN AS A SINGLE
9 EXPENDITURE, ALL OF THESE INITIATIVES COMBINED, IT WILL BE ONE
10 OF THE LARGEST, IF NOT THE LARGEST, PROMOTION EXPENDITURES FOR
11 A SINGLE SET OF CIRCUMSTANCES, YES.
12 Q. THE NEXT PARAGRAPH READS:
13 "ACCORDING TO FALK, THESE INITIATIVES ARE,
14 QUOTE, NECESSARY TO REMAIN COMPETITIVE IN SAN
15 FRANCISCO AND THE BAY AREA AND TO ENSURE THE TWO
16 NEWSPAPERS CONTINUE TO BE THE BEST IN THE BAY
17 AREA IN CONTENT AND SERVICE."
18 I TAKE IT BY "TWO NEWSPAPERS" YOU MEAN THE CHRONICLE
19 AND THE EXAMINER?
20 A. YES.
21 Q. CAN YOU DESCRIBE HOW THESE INITIATIVES THAT ARE REFERENCED
22 EARLIER IN THE PRESS RELEASE WILL HELP YOU REMAIN COMPETITIVE?
23 A. OBVIOUSLY FROM THE CIRCULATION CHARTS WE NEED TO DO MANY
24 THINGS TO TURN AROUND THE CIRCULATION READERSHIP PICTURE.
25 KNIGHT-RIDDER RECENTLY ANNOUNCED THAT THE MERCURY NEWS WAS
1416
1 COMING TO TOWN WITH A SAN FRANCISCO EDITION, WITH 12 OR 15
2 REPORTERS, AT A LOWER PRICE. THEY HAVE A REPUTATION FOR HAVING
3 A GOOD BUSINESS SECTION; AND ALL OF THESE INITIATIVES ARE
4 CERTAINLY DESIGNED AS PART OF OUR STRATEGIC MARKETING PLAN,
5 SOME OF THEM DESIGNED AND PLANNED SINCE THAT STRATEGIC
6 MARKETING PLAN, BUT ALL DESIGNED TO, NUMBER ONE, TURN AROUND
7 THAT CIRCULATION SITUATION; AND, NUMBER TWO, YOU KNOW, CONFRONT
8 WHAT WE EXPECT WILL BE A SIGNIFICANT INVASION BY THE MERCURY
9 NEWS INTO OUR BACKYARDS.
10 Q. WHAT DO YOU MEAN BY AN INVASION BY THE MERCURY NEWS IN
11 YOUR OWN BACKYARD?
12 A. WELL, I MEAN, THE MERCURY NEWS BASED IN SAN JOSE, YOU
13 KNOW, 60 MILES AWAY HAS BEEN CREEPING UP THE PENINSULA FOR
14 MANY, MANY YEARS. IT'S A VERY COMPETITIVE AREA FOR US ON THE
15 PENINSULA, AND I THINK THIS IS AN EFFORT BY THEM TO LOB A
16 GRENADE AND JUMP RIGHT INTO SAN FRANCISCO JUST TO STIR THINGS
17 UP.
18 Q. ALL RIGHT. THE NEXT PARAGRAPH, THERE'S A REFERENCE TO THE
19 SINGLE COPY PRICE. DO YOU SEE THAT?
20 A. YES.
21 Q. YOU SAY YOU'RE GOING TO CHANGE THE SINGLE COPY PRICE OF
22 THE CHRONICLE. FROM WHAT TO WHAT?
23 A. THE SINGLE COPY PRICE AS OF THIS PAST MONDAY WENT DOWN
24 FROM 50 CENTS TO 25 CENTS FOR ALL SINGLE COPIES OF THE
25 CHRONICLE.
1417
1 Q. FOR HOW LONG A PERIOD OF TIME HAVE YOU BEEN CONSIDERING
2 THIS?
3 A. THE NEWSPAPER AGENCY HAS BEEN TALKING ABOUT THE SINGLE
4 COPY PRICE OF THE CHRONICLE AS IT RELATES TO THE DECLINING
5 CIRCULATION NUMBERS FOR PROBABLY 18 TO 24 MONTHS. WE'VE DONE
6 ANALYSIS OF THE REVENUE IMPACT AND THE REVENUE IMPACT VERSUS A
7 RETURN IN CIRCULATION FOR QUITE SOME PERIOD OF TIME.
8 WHAT PROMPTED US TO RECOMMEND TO THE CHRONICLE
9 DROPPING THE PRICE WHEN WE DID WAS A COMBINATION OF OUR MARCH
10 ABC PUBLISHER STATEMENT COMPILATION, WHICH WAS GOING TO SHOW
11 CIRCULATION DOWN AGAIN, AND CLEARLY THIS ANNOUNCEMENT BY THE
12 MERCURY NEWS TO COME TO TOWN WITH A SAN FRANCISCO EDITION.
13 Q. LET ME DIRECT YOUR ATTENTION, IF I COULD, TO EXHIBIT 1189.
14 A. (WITNESS EXAMINES DOCUMENT.)
15 Q. IT'S A DOCUMENT THAT APPEARS TO BE ON CITY AND COUNTY OF
16 SAN FRANCISCO STATIONERY DATED MARCH 24, 2000.
17 A. YES.
18 Q. IS THIS A DOCUMENT THAT YOU RECEIVED IN YOUR CAPACITY AS
19 THE PRESIDENT OF THE AGENCY?
20 A. YES, I DID.
21 Q. AND WHO SENT IT TO YOU?
22 A. THIS CAME DIRECTLY FROM MARK PRIMO AND DAN BRUGMAN, WHO
23 ARE MEMBERS OF THE DEPARTMENT OF PUBLIC WORKS OF THE CITY AND
24 COUNTY OF SAN FRANCISCO.
25 THE COURT: DO I HAVE THAT, MR. HALLING, 1189?
1418
1 MR. HALLING: 1189. I BELIEVE YOU DO. I HAVE
2 ANOTHER COPY.
3 (PAUSE IN PROCEEDINGS.)
4 THE COURT: GO AHEAD.
5 BY MR. HALLING:
6 Q. IN THE FIRST PARAGRAPH IT TALKS ABOUT A COPY OF A SURVEY.
7 WAS THERE A SURVEY YOU WERE EXPECTING FROM THE CITY?
8 A. THIS DOCUMENT AND SURVEY ARE ALL WRAPPED UP IN THE CITY'S
9 PASSING OF A NEWS RACK ORDINANCE THAT IS SPECIFICALLY DESIGNED
10 TO REMOVE FREE-STANDING NEWS RACKS FROM THE STREETS OF SAN
11 FRANCISCO AND REPLACE THEM WITH PEDESTAL MOUNT UNITS. AND THIS
12 IS A SURVEY THAT THE CITY PROMISED THOSE INVOLVED, THOSE
13 NEWSPAPER PUBLISHERS WHO PUBLISH PAPERS DISTRIBUTED THROUGH
14 RACKS, AS TO HOW MANY RACKS ARE ON THE STREETS OF SAN FRANCISCO
15 AND WHERE THEY ARE LOCATED.
16 MR. HALLING: I WOULD OFFER EXHIBIT 1189.
17 MR. ALIOTO: NO OBJECTION, YOUR HONOR.
18 THE COURT: 1189 WILL BE ADMITTED.
19 (DEFENDANT'S EXHIBIT 1189
20 RECEIVED IN EVIDENCE)
21 THE COURT: I FOUND MY COPY OF THAT, MR. HALLING, SO
22 I'LL GIVE THAT BACK. THANK YOU.
23 /////
24 BY MR. HALLING:
25 Q. NOW, IN THE FIRST PARAGRAPH OF THIS LETTER YOU RECEIVED
1419
1 THERE'S A DESCRIPTION OF A SURVEY, WHICH I BELIEVE YOU'VE
2 ALREADY IDENTIFIED, AND IT ALSO SAYS THERE'S SOMETHING CALLED A
3 PUBLISHER'S KEY. WHAT'S THAT, IF YOU KNOW?
4 A. WELL, WHAT THE CITY DID IN THIS DOCUMENT IS THEY HAVE A
5 CODE NUMBER FOR EACH OF THE PUBLISHERS WHO DISTRIBUTE THROUGH
6 NEWS RACKS, AND THIS WAS THE DETAIL BY THOSE CODE NUMBERS OF
7 WHO HAS -- WHO OWNS RACKS WHERE AND HOW MANY THEY OWN.
8 Q. ALL RIGHT. IN THE THIRD PARAGRAPH THERE'S A REFERENCE TO
9 8,322 FREE-STANDING NEWS RACKS. DO YOU SEE THAT?
10 A. THAT'S THE TOTAL NUMBER THAT WERE COUNTED IN THIS SURVEY,
11 YES.
12 Q. IS THERE CURRENTLY A DISPUTE PENDING BETWEEN THE CITY AND
13 PUBLISHERS CONCERNING THIS NEWS RACK ORDINANCE?
14 A. YES, UNFORTUNATELY WE'RE IN LITIGATION WITH THE CITY.
15 SEVERAL MAJOR NEWSPAPER COMPANIES, OURSELVES, THE NEW TIMES,
16 THE BAY GUARDIAN, AMONG OTHERS, DISPUTING THE PROPOSED RACK
17 ORDINANCE OR THE PASSED RACK ORDINANCE, AND THAT IS CURRENTLY
18 IN LITIGATION, YES.
19 Q. WHO WERE THE OTHER NEWSPAPER PUBLISHERS THAT YOU'RE IN --
20 LET ME JUST BACK UP.
21 IS THERE A LAWSUIT THAT'S BEEN FILED?
22 A. YES, WE HAVE FILED A LAWSUIT.
23 Q. AND SFNA IS A PLAINTIFF?
24 A. YES, WE ARE.
25 Q. WHO ARE THE OTHER PLAINTIFFS?
1420
1 A. NEW TIMES, WHICH IS THE SF WEEKLY; THE BAY GUARDIAN; THE
2 WALL STREET JOURNAL; THE L.A. TIMES AND TIMES MIRROR; GANNETT
3 AND U.S.A. TODAY.
4 Q. IS KNIGHT-RIDDER A PARTY?
5 A. KNIGHT-RIDDER AND THE MERCURY NEWS. I THINK I'VE COVERED
6 THEM ALL.
7 Q. ALL RIGHT. TURN TO THE SECOND PAGE, IF YOU WOULD, OF THE
8 EXHIBIT 1189. THERE'S A HEADING, "NEWSPAPER -- SAN FRANCISCO
9 NEWS RACK SURVEY PUBLISHER'S KEY." DO YOU SEE THAT?
10 A. YES.
11 Q. AND IT GOES ON FOR TWO PAGES. I SEE ON THE SECOND PAGE
12 THERE IS A REFERENCE TO SAN FRANCISCO CHRONICLE. DO YOU SEE
13 THAT?
14 A. YES, CHRONICLE IS ON PAGE 2.
15 Q. AND ALSO ON PAGE 2 WOULD BE THE EXAMINER, THE MERCURY
16 NEWS?
17 A. YES. THE EXAMINER IS NUMBER 90. YES.
18 Q. AND THEN TURN TO THE NEXT PAGE OF THE EXHIBIT. THERE'S A
19 PAGE HEADED "NEWS RACK SUMMARY BOX COUNT." DO YOU SEE THAT?
20 A. YES.
21 Q. WHAT'S YOUR UNDERSTANDING AS TO WHAT'S DEPICTED ON THIS
22 PAGE?
23 A. THAT'S JUST A TOTAL OF NEWS RACKS BY THE VARIOUS AREAS OF
24 THE CITY, THE FILLMORE, UNION STREET, SOUTH OF MARKET, ET
25 CETERA. THESE ARE THE AREAS IN WHICH THE CITY INTENDS TO
1421
1 REPLACE FREE-STANDING NEWS RACKS WITH PEDESTAL MOUNTS.
2 Q. ALL RIGHT. THE REST OF THE DOCUMENT APPEARS TO BE A
3 40-PAGE SUMMARY. MAYBE YOU CAN JUST TELL ME WHAT YOUR
4 UNDERSTANDING IS OF THE REMAINDER OF THE DOCUMENT.
5 A. THE REMAINDER OF THE DOCUMENT IS ALL OF THE DETAIL OF THE
6 CITY SURVEY OF STREET CORNER BY STREET CORNER OF WHICH
7 NEWSPAPER RACKS ARE THERE, WHAT NEWSPAPERS OR PUBLICATIONS ARE
8 DISTRIBUTED THROUGH THE NEWS RACKS AND WHO THE PUBLISHERS OF
9 THOSE PUBLICATIONS ARE.
10 Q. USING THE DATA CONTAINED IN THE CITY'S NEWS RACK SURVEY,
11 EXHIBIT 1189, DID YOU HAVE A COMPILATION PREPARED?
12 A. YES, I DID. I ASKED OUR CIRCULATION PEOPLE TO ACTUALLY GO
13 THROUGH THESE 40 PAGES AND ADD UP THE NUMBER OF NEWS RACKS BY
14 PUBLICATION.
15 Q. AND HOW ARE YOU ABLE TO TELL WHICH PUBLICATION HAS HOW
16 MANY NEWS RACKS?
17 A. THEY'RE INDICATED IN THE SURVEY.
18 Q. THAT'S BY CODE?
19 A. YES.
20 Q. TAKE A LOOK, IF YOU WOULD, AT WHAT'S BEEN MARKED AS
21 EXHIBIT 1194.
22 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
23 Q. IS THAT THE COMPILATION YOU JUST REFERRED TO A MOMENT AGO
24 THAT'S BASED ON THE CITY SURVEY IN 1189?
25 A. YES. SPECIFICALLY THESE ARE THE TOTALS BY PUBLISHER OF
1422
1 THE NEWS RACKS IN THOSE DESIGNATED AREAS.
2 MR. HALLING: I WOULD OFFER EXHIBIT 1194.
3 MR. ALIOTO: OKAY. I HAVE NO OBJECTION, YOUR HONOR.
4 THE COURT: 1194 IS ADMITTED.
5 (DEFENDANT'S EXHIBIT 1194
6 RECEIVED IN EVIDENCE)
7 BY MR. HALLING:
8 Q. I'D LIKE TO ASK YOU SOME QUESTIONS ABOUT SOME OF THE
9 ENTRIES ON THIS COMPILATION. LET'S TAKE THE FIRST ONE, NUMBER
10 ONE. IT SAYS "ADVERTISER," AND THEN IT HAS A COUNT OF 691.
11 WHAT DOES THAT REPRESENT?
12 A. THERE ARE 691 NEWS RACKS DISTRIBUTING THIS PUBLICATION ON
13 THE STREETS OF SAN FRANCISCO TODAY.
14 THE COURT: MR. HALLING, IF I LET YOU LEAD THE
15 WITNESS A LITTLE, COULD WE COME TO THE POINT?
16 (LAUGHTER)
17 MR. HALLING: CERTAINLY, YOUR HONOR.
18 THE COURT: ALL RIGHT.
19 MR. HALLING: THANK YOU.
20 Q. TURN TO THE SECOND PAGE AND TELL ME HOW MANY NEWS RACKS
21 THE CHRONICLE HAS IN SAN FRANCISCO ACCORDING TO THIS CITY
22 SURVEY.
23 A. THE CHRONICLE HAS 546, THE EXAMINER HAS 612.
24 Q. ABOUT WHAT PERCENTAGE IS THAT OF THE TOTAL?
25 A. OF THE TWO COMBINED OF THE TOTAL, YOU'RE TESTING ME,
1423
1 10 PERCENT, 12 PERCENT.
2 Q. HOW MANY NEWS RACKS DOES THE BAY GUARDIAN HAVE?
3 A. THE BAY GUARDIAN HAS 723.
4 Q. HOW ABOUT THE SF WEEKLY?
5 A. 774.
6 Q. HOW ABOUT THE MERCURY NEWS?
7 A. (WITNESS EXAMINES DOCUMENT.) GIVE ME A HINT.
8 THE COURT: IT'S UNDER SAN JOSE.
9 BY MR. HALLING:
10 Q. IT'S UNDER SAN JOSE.
11 (LAUGHTER)
12 A. 112.
13 Q. OKAY.
14 THE COURT: I THINK WE'RE GETTING THE POINT.
15 MR. HALLING: ONE MORE, YOUR HONOR?
16 THE COURT: ALL RIGHT.
17 (LAUGHTER)
18 BY MR. HALLING:
19 Q. THERE'S 691, THE FIRST ONE WE MENTIONED FOR THE
20 ADVERTISER?
21 A. YES.
22 Q. WHAT'S THE ADVERTISER?
23 A. TO THE BEST OF MY KNOWLEDGE, IT'S A CLASSIFIED ADVERTISING
24 PUBLICATION. MANY OF THESE ARE ADVERTISING PUBLICATIONS, MANY
25 ARE EDITORIAL PUBLICATIONS, MANY ARE A COMBINATION OF THE TWO.
1424
1 Q. ALL RIGHT. LET ME MOVE ON TO ANOTHER TOPIC.
2 ARE YOU ABLE TO ESTIMATE THE AMOUNT OF AD REVENUE
3 THAT IS CURRENTLY ATTRIBUTABLE TO THE EXAMINER?
4 A. YES, WE CAN ESTIMATE.
5 Q. AND WHAT WOULD IT BE?
6 A. WELL, WHEN I SAY WE CAN ESTIMATE THE ADVERTISING REVENUE
7 ASSOCIATED WITH THE EXAMINER, I GUESS THE MOST COMPLETE ANSWER
8 IS WE CAN CERTAINLY ESTIMATE WITH A FAIR DEGREE OF ACCURACY, A
9 RANGE OF REVENUE THAT COULD BE ATTRIBUTABLE TO THE EXAMINER.
10 Q. AND WHAT'S THAT RANGE?
11 A. THAT RANGE WOULD BE ZERO TO THE SAME PERCENTAGE AS THEIR
12 CIRCULATION OF THE TOTAL, WHICH WOULD BE 20 PERCENT. SO
13 20 PERCENT OF THE DAILY ADVERTISING REVENUE WOULD BE THE MOST
14 CONSERVATIVE HIGHEST NUMBER.
15 Q. AND WHAT DO YOU THINK IT IS? THE QUESTION BEING, THE
16 AMOUNT OF AD REVENUE THAT'S ATTRIBUTABLE TO THE EXAMINER.
17 A. IF THE EXAMINER WAS CLOSED TOMORROW, I COULD MAKE A VERY
18 STRONG CASE THAT THE SAN FRANCISCO NEWSPAPER AGENCY'S AD
19 REVENUE WOULD NOT DECREASE AT ALL.
20 Q. WHY IS THAT?
21 A. WELL, IT'S A COMBINATION OF REASONS. WE WOULD EXPECT THAT
22 IF THE EXAMINER CLOSED TOMORROW, THAT PROBABLY A THIRD TO A
23 HALF OF THOSE READERS WOULD BEGIN BUYING THE MORNING NEWSPAPER,
24 THE CHRONICLE. SO CHRONICLE CIRCULATION WOULD INCREASE.
25 AND AS I'VE ALREADY COVERED, YOU KNOW, THERE'S
1425
1 60 PERCENT DUPLICATION BETWEEN EXAMINER READERS AND CHRONICLE
2 READERS, AND I THINK, YOU KNOW, BETWEEN THOSE TWO FACTS, THE
3 FACT THAT A.M. CIRCULATION WOULD INCREASE AND THAT THE ONLY
4 REAL NET LOSS WOULD BE DUPLICATIVE READERS, CHRONICLE
5 READERSHIP WOULD NOT ONLY STAY THE SAME, BUT PROBABLY INCREASE.
6 Q. LET ME SHOW YOU A DOCUMENT THAT WAS JUST MARKED TODAY AS
7 EXHIBIT 1197. DO YOU HAVE IT THERE?
8 A. (WITNESS EXAMINES DOCUMENT.) NOT YET.
9 MR. HALLING: MAY I APPROACH THE WITNESS, YOUR
10 HONOR?
11 THE COURT: YES, YOU MAY.
12 THE WITNESS: OKAY.
13 BY MR. HALLING:
14 Q. IS THIS A DOCUMENT THAT WAS PREPARED UNDER YOUR
15 SUPERVISION?
16 A. YES. I ASKED OUR MARKETING AND RESEARCH DEPARTMENT TO
17 PREPARE THIS ANALYSIS JUST THIS WEEK.
18 Q. AND THE HEADING IS "DAILY CPM," PAREN, "COST PER
19 THOUSAND," PAREN, "ANALYSIS FOR SELECTED BAY AREA NEWSPAPERS."
20 A. YES.
21 Q. IS THE DATA CONTAINED ON THIS EXHIBIT THE TYPE OF DATA
22 THAT YOU WOULD NORMALLY LOOK TO YOUR MARKETING DEPARTMENT TO
23 COMPILE?
24 A. YES, OUR MARKETING RESEARCH DEPARTMENT WOULD DO CPM
25 ANALYSIS WORK.
1426
1 Q. DO YOU BELIEVE THAT THE INFORMATION CONTAINED IN THIS
2 EXHIBIT IS ACCURATE?
3 A. YES, IT IS.
4 Q. WHY WAS IT PREPARED?
5 A. IT WAS PREPARED AT THE REQUEST OF JIM ROSSE.
6 MR. HALLING: I WOULD OFFER EXHIBIT 1197.
7 MR. ALIOTO: MAY I SEE IT, YOUR HONOR?
8 THE COURT: WHAT'S THAT?
9 MR. ALIOTO: WE WERE GIVEN A COPY THIS AFTERNOON,
10 BUT I DON'T -- WE CAN'T FIND IT APPARENTLY.
11 THE COURT: ANY OBJECTION?
12 (PAUSE IN PROCEEDINGS.)
13 MR. ALIOTO: YES, THERE'S NO OBJECTION TO THAT.
14 THE COURT: 1197 WILL BE ADMITTED.
15 (DEFENDANT'S EXHIBIT 1197
16 RECEIVED IN EVIDENCE)
17 THE COURT: THIS IS THE ORIGINAL; IS IT?
18 MR. HALLING: YES. THEY'RE ALL ORIGINALS. SINCE WE
19 COULDN'T COPY, WE PUT A STICKER ON ALL OF THEM.
20 THE COURT: OH, YOU DID. I WAS JUST GOING TO MARK
21 ON THIS. THIS SHOULD BE PART OF THE RECORD, AND IF YOU HAVE AN
22 EXTRA COPY....
23 (PAUSE IN PROCEEDINGS.)
24 BY MR. HALLING:
25 Q. NOW, MR. FALK, I'D LIKE TO DIRECT YOUR ATTENTION, PLEASE,
1427
1 TO EXHIBIT 986.
2 A. OKAY.
3 Q. EXHIBIT 986 BEARS A DATE MAY 19, 1995. IT APPEARS TO BE
4 AN INTEROFFICE AGENCY MEMO FROM YOU TO JIM HALE, SUBJECT A.M.
5 ONLY ANALYSIS. NOW, WHO IS JIM HALE?
6 A. JIM HALE WAS THE PRESIDENT AND CEO OF THE NEWSPAPER AGENCY
7 PRIOR TO ME.
8 Q. AND SO YOU REPORTED TO HIM AT THIS TIME, MAY, '95?
9 A. YES. I WAS THE SENIOR VP OF SALES AND MARKETING.
10 Q. DOES EXHIBIT -- IS EXHIBIT 986 A MEMO YOU PREPARED TO
11 MR. HALE?
12 A. YES, IT IS.
13 Q. AND DID HE REQUEST THIS MEMO?
14 A. YES, HE DID. HE ASKED ME TO DO A FINANCIAL ANALYSIS OF
15 WHAT OUR COSTS AND REVENUE WOULD LOOK LIKE IF THE EXAMINER
16 CLOSED.
17 Q. AND THIS IS THE ANALYSIS YOU DID FOR HIM?
18 A. YES, IT IS.
19 MR. HALLING: I WOULD OFFER 986.
20 MR. ALIOTO: I'M SORRY, YOUR HONOR. I DID NOT HEAR
21 WHO MR. HALE WAS. COULD I JUST HAVE THAT STATEMENT, PLEASE?
22 THE COURT: FORMER -- PREDECESSOR --
23 THE WITNESS: FORMER CEO PRIOR TO MYSELF OF THE
24 NEWSPAPER AGENCY.
25 MR. ALIOTO: OKAY. NO OBJECTION.
1428
1 THE COURT: VERY WELL. 986 WILL BE ADMITTED.
2 (DEFENDANT'S EXHIBIT 986
3 RECEIVED IN EVIDENCE)
4 BY MR. HALLING:
5 Q. NOW, CAN YOU JUST TELL US AGAIN WHAT WAS THE PURPOSE OF
6 THIS ANALYSIS?
7 A. WELL, THE SPECIFIC REQUEST WAS TO DO A CONFIDENTIAL
8 FINANCIAL ANALYSIS OF THE IMPACT ON SAN FRANCISCO NEWSPAPER
9 AGENCY EXPENSES AND REVENUE IF THE EXAMINER WERE TO BE CLOSED.
10 Q. OKAY. AND ON THE FIRST PAGE OF THE DOCUMENT UNDER THE
11 HEADING "SUMMARY OF SAVINGS" --
12 A. YES.
13 Q. -- DOES THAT REFLECT YOUR CONCLUSIONS?
14 A. YES. THE SUMMARY BREAKS DOWN BY CATEGORY AND BY
15 DEPARTMENT, NUMBER ONE, SOME LOST REVENUE FROM CIRCULATION AND
16 THE EXPENSE SAVINGS IF WE DID NOT HAVE THE EXPENSE BURDEN OF
17 THE EXAMINER.
18 Q. WHAT ASSUMPTION, IF ANY, DID YOU MAKE CONCERNING
19 ADVERTISING REVENUE?
20 A. THE ASSUMPTION MADE ON AD REVENUE, THAT THERE WOULD BE NO
21 LOSS OF AD REVENUE IN THE EXAMINER WAS CLOSED.
22 Q. AND WHY WAS THAT? I KNOW YOU --
23 A. AGAIN, THE ASSUMPTION WAS -- MY BELIEF WAS AND IS THAT
24 THERE WOULD BE -- IN THIS SPECIFIC DOCUMENT ANALYSIS, ABOUT
25 HALF OF THE EXAMINER CIRCULATION WOULD GO FROM AFTERNOON TO
1429
1 MORNING; AND BETWEEN THE INCREASE IN CIRCULATION IN THE MORNING
2 AND THE HIGH DUPLICATION IN THE AFTERNOON AND THE FACT THAT
3 READERSHIP AS AN ENTERPRISE WOULD NOT BE LOST, THAT THERE WOULD
4 BE NO REASON TO LOWER AD RATES. ADVERTISING REVENUE WOULD
5 REMAIN THE SAME.
6 Q. AND WHAT DID YOU CONCLUDE IN THIS ANALYSIS?
7 A. THE CONCLUSION THERE ON PAGE 1 IS THAT THE NET SAVINGS TO
8 THE AGENCY, NETTING A LOSS OF 3.7 MILLION FROM SOME LOST
9 CIRCULATION REVENUE AGAINST THE EXPENSE SAVINGS OF ABOUT
10 25 MILLION, WOULD IMPROVE THE NEWSPAPER AGENCY'S BOTTOM LINE,
11 GROSS EXCESS, BY 21,625,000.
12 Q. AND THAT WOULD BE IF YOU CLOSED THE EXAMINER?
13 A. YES.
14 Q. NOW, DOES THIS ANALYSIS TAKE INTO ACCOUNT ANY OF THE
15 EDITORIAL COSTS?
16 A. NO, IT DOES NOT.
17 THE COURT: MR. HALLING, YOU INTRODUCED AN EXHIBIT
18 IN WHICH YOU SHOWED, I BELIEVE, FROM 1965 THROUGH 1999 THE
19 EXAMINER'S SHARE OF THE EXCESS, NET EXCESS BY THE NEWSPAPER
20 AGENCY AND THEN THE EDITORIAL COSTS.
21 MR. HALLING: CORRECT. IT WAS --
22 THE COURT: WHAT EXHIBIT NUMBER WAS THAT?
23 MR. HALLING: 91.
24 THE COURT: 91. THANK YOU.
25 BY MR. HALLING:
1430
1 Q. I'D LIKE TO DIRECT YOUR ATTENTION, PLEASE, TO ANOTHER
2 EXHIBIT, 984.
3 A. OKAY.
4 Q. 984 IS HEADED "CONFIDENTIAL SAN FRANCISCO NEWSPAPER AGENCY
5 INTEROFFICE MEMO." IT'S DATED JUNE 6, 1997. THE SUBJECT
6 STATED ON THE EXHIBIT IS "A.M. ONLY," SLASH, "CHRONICLE." IT
7 APPEARS TO BE FROM YOU, STEVE FALK, TO LEE GUITTAR AND JOHN
8 SIAS. DO YOU HAVE THAT IN FRONT OF YOU?
9 A. YES, I DO.
10 Q. IS THIS A DOCUMENT THAT YOU PREPARED?
11 A. YES, I DID.
12 Q. AND WHO IS LEE GUITTAR?
13 A. LEE GUITTAR AT THE TIME WAS PUBLISHER AND EDITOR OF THE
14 EXAMINER.
15 Q. AND WHAT WAS YOUR PURPOSE IN PREPARING THIS DOCUMENT?
16 A. WELL, AGAIN, MUCH LIKE THE REQUEST I HAD IN 1995, I WAS
17 ASKED BY LEE GUITTAR AND JOHN SIAS TO AGAIN DO AN ANALYSIS FOR
18 THE NEWSPAPER AGENCY FOR EXPENSE AND REVENUE IMPACT IN THE
19 EVENT THE EXAMINER WAS CLOSED, A VERY SIMILAR EXERCISE TO THE
20 ONE I DID ON MAY 19TH, 1995.
21 Q. AND DOES THIS DOCUMENT, EXHIBIT 984, REFLECT YOUR ANALYSIS
22 AND RESPONSE TO THAT INQUIRY?
23 A. YES, IT DOES.
24 MR. HALLING: I WOULD OFFER 984.
25 MR. ALIOTO: NO OBJECTION.
1431
1 THE COURT: 984 WILL BE ADMITTED.
2 (DEFENDANT'S EXHIBIT 984
3 RECEIVED IN EVIDENCE)
4 BY MR. HALLING:
5 Q. LET ME DIRECT YOUR ATTENTION TO THE SECOND PAGE UNDER THE
6 HEADING "SUMMARY OF CHANGES."
7 A. OKAY.
8 Q. DOES THAT REFLECT THE CONCLUSIONS YOU REACHED IN YOUR
9 ANALYSIS?
10 A. YES, IT DOES.
11 Q. ALL RIGHT. THE FIRST LINE ITEM SAYS "ADVERTISING REVENUE
12 NO CHANGE." IS THAT AN ASSUMPTION OR PART OF YOUR ANALYSIS?
13 A. AGAIN, THAT WAS PART OF THE ANALYSIS DONE AT THE TIME; AND
14 BASED ON THE SAME CIRCULATION ASSUMPTIONS AS I HAD IN THE 1995
15 PLAN DID NOT EXPECT THERE WOULD BE A CHANGE IN ADVERTISING
16 REVENUE.
17 Q. AND THEN CAN YOU JUST GO DOWN THE LIST AND JUST VERY
18 BRIEFLY TELL US WHAT THE CATEGORIES AND THE FIGURES REPRESENT?
19 A. THE CIRCULATION REVENUE LOSS OF 6.1 MILLION COMES FROM THE
20 REDUCTION OF CIRCULATION. EVEN THOUGH HALF OF THE EXAMINER
21 READERS MAY START READING AND BUYING THE CHRONICLE, THERE
22 CERTAINLY WILL BE A NUMBER THAT READS SOMETHING ELSE OR SOMEONE
23 ELSE'S NEWSPAPER. SO THERE IS A LOSS OF CIRCULATION REVENUE OF
24 6.1 MILLION.
25 THE NEXT LINE, CIRCULATION PAYROLL, ARE THE EXPENSES
1432
1 THAT WE PAY TO CIRCULATION PERSONNEL FOR DELIVERING THE
2 NEWSPAPER, OUR DISTRICT MANAGERS, OUR DRIVERS, EVERYONE
3 INVOLVED WITH THE DISTRIBUTION OF THE EXAMINER.
4 THE CIRCULATION EXPENSE LINE OF 7 MILLION WOULD BE
5 ALL OTHER CIRCULATION EXPENSES OTHER THAN PAYROLL. IT WOULD BE
6 THE COSTS OF MAINTAINING EXAMINER TRUCKS. IT WOULD BE THE
7 DELIVERY FEES WE PAY TO NEWSPAPER CARRIERS. THEY WOULD BE THE
8 PROMOTION AND SALES, TELEMARKETING EXPENSES FOR SUPPORTING
9 EXAMINER CIRCULATION.
10 THE FOLLOWING LINE, NEWSPRINT AND INK, IS THE AMOUNT
11 OF MONEY WE WOULD SAVE ON NEWSPRINT AND INK FROM NOT HAVING TO
12 PRINT THE EXAMINER. THAT NUMBER WAS ALREADY NETTED AGAINST THE
13 CIRCULATION INCREASE THAT WOULD GO TO THE MORNING CYCLE.
14 PRODUCTION PAYROLL IS THE SAVINGS THAT WE WOULD
15 INCUR FROM NOT HAVING TO PRINT THE EXAMINER. THE PRESS ROOM
16 COSTS, THE MAIL ROOM COSTS, PAYROLL, SALARIES, BENEFITS OF ALL
17 OF THE PEOPLE INVOLVED IN THE PRINTING PROCESS.
18 THE BOTTOM LINE IS AN APPROXIMATION, ALL OTHER
19 COSTS. WE WERE CLEARLY TRYING TO KEEP THIS KIND OF ANALYSIS
20 CONTAINED TO A VERY SMALL CIRCLE OF MANAGERS AND EXECUTIVES AT
21 THE NEWSPAPER AGENCY. SO WE ESTIMATED THAT IF THE EXAMINER WAS
22 CLOSED, WE WOULD SAVE ANOTHER $2 MILLION, A LITTLE BIT IN THE
23 FINANCE DEPARTMENT, A LITTLE BIT IN THE HUMAN RESOURCES
24 DEPARTMENT, A LITTLE BIT IN THE LABOR RELATIONS DEPARTMENT,
25 JUST ALL OF THE OTHER NEWSPAPER SUPPORT DEPARTMENTS WOULD
1433
1 PROBABLY BE IN THE RANGE OF $2 MILLION.
2 Q. AND THE FINAL LINE AT THE BOTTOM SAYS "TOTAL AGENCY
3 $20 MILLION." WHAT DOES THAT REPRESENT?
4 A. AGAIN, THAT WOULD BE THE IMPROVEMENT TO THE SAN FRANCISCO
5 NEWSPAPER AGENCY GROSS EXCESS NET OF REVENUE LOSS FROM
6 CIRCULATION OF CLOSING THE EXAMINER AT THAT PERIOD IN TIME.
7 Q. AND, AGAIN, AS WITH THE PRIOR STUDY, THIS WOULD NOT
8 REFLECT ANY SAVINGS THAT MIGHT OCCUR BY ELIMINATING THE
9 EDITORIAL DEPARTMENT OF THE EXAMINER?
10 A. THAT'S CORRECT.
11 Q. DID YOU DO ANY OTHER OF THESE A.M. ANALYSES CONCERNING
12 POTENTIALLY CLOSING THE EXAMINER?
13 A. THERE WAS ANOTHER ONE, AT LEAST ONE ADDITIONAL ONE DONE IN
14 1999, YES.
15 Q. TAKE A LOOK, IF YOU WOULD, AT EXHIBIT 983.
16 A. (WITNESS EXAMINES DOCUMENT.) OKAY.
17 Q. CAN YOU IDENTIFY WHAT'S BEEN MARKED AS EXHIBIT 983?
18 A. AGAIN, THIS IS ANOTHER JOINT OPERATING AGREEMENT A.M. ONLY
19 PROFIT AND LOSS COMPARISON. THIS GOES INTO A LITTLE BIT MORE
20 DETAIL THAN WE HAD GONE INTO IN THE PAST.
21 Q. LET ME STOP YOU THERE.
22 A. OKAY.
23 Q. WHO PREPARED THIS DOCUMENT?
24 A. MYSELF AND OUR CHIEF FINANCIAL OFFICER.
25 Q. AND WAS THIS IN RESPONSE TO SOME INQUIRY?
1434
1 A. AGAIN, THIS WAS IN RESPONSE TO A REQUEST BY THE PRINCIPALS
2 TO THE NEWSPAPER AGENCY TO DO THIS ANALYSIS.
3 Q. AND THE ANALYSIS BEING WHAT WOULD THE FINANCES OF THE
4 AGENCY LOOK LIKE IF YOU CLOSED THE EXAMINER?
5 A. WHAT CHANGE WOULD THERE BE IN THE GROSS EXCESS OF THE
6 AGENCY IF THE EXAMINER WAS CLOSED.
7 Q. AND WHAT'S THE DATE OF THIS ANALYSIS? WHEN WAS IT
8 PREPARED?
9 A. THIS IS DATED MAY 24TH, 1999.
10 MR. HALLING: I WOULD OFFER EXHIBIT 983.
11 MR. ALIOTO: NO OBJECTION.
12 THE COURT: 983 WILL BE ADMITTED.
13 (DEFENDANT'S EXHIBIT 983
14 RECEIVED IN EVIDENCE)
15 BY MR. HALLING:
16 Q. AND WHAT WAS THE RESULT OF THIS ANALYSIS?
17 A. THE RESULT OF THIS ANALYSIS WAS VERY SIMILAR TO THE PRIOR
18 TWO ANALYSES IN 1995 AND 1997. THE THIRD COLUMN SHOWING THE
19 DIFFERENCE BETWEEN THE NEWSPAPER AGENCY'S PRO FORMA EXPECTED
20 PERFORMANCE FOR 1999 VERSUS AN A.M. ONLY OPERATION, AND THE
21 DIFFERENCE COLUMN BEING THE CHANGE TO THE GROSS EXCESS LINE.
22 AND THIS REPORT IS, AGAIN, $20 MILLION.
23 Q. SO THAT NUMBER IS APPROXIMATELY WHAT YOU GOT IN THE OTHER
24 TWO STUDIES?
25 A. YES.
1435
1 Q. WHAT, IF ANYTHING, DO YOU CONCLUDE FROM HAVING DONE THESE
2 STUDIES OVER A FOUR-YEAR PERIOD?
3 A. WELL, IT'S CLEAR IN ALL OF THESE STUDIES THAT, YOU KNOW,
4 CLOSING THE EXAMINER WOULD CERTAINLY HAVE A POSITIVE FINANCIAL
5 IMPACT ON THE FINANCIAL PERFORMANCE OF THE SAN FRANCISCO
6 NEWSPAPER AGENCY.
7 Q. LET ME TURN TO ANOTHER TOPIC. CAN YOU DESCRIBE THE
8 PROCESS BY WHICH ADVERTISING RATES ARE ESTABLISHED AT THE
9 AGENCY?
10 A. ADVERTISING RATE INCREASES -- I HAVE TO SPLIT UP THAT
11 ANSWER INTO TWO PIECES.
12 ADVERTISING RATE INCREASES, IF WE INCREASE THE
13 RETAIL ADVERTISING RATE 3 PERCENT, FOR INSTANCE, THE NEWSPAPER
14 AGENCY WOULD MAKE FROM TIME TO TIME RATE INCREASE
15 RECOMMENDATIONS TO THE PRINCIPALS.
16 THE SECOND PIECE OF ADVERTISING RATES ARE ALL OTHER
17 ADVERTISING RATES, RATES FOR SPECIAL SECTIONS, RATES FOR
18 SPECIAL PROJECTS, RATES FOR NEW PAGES, NEW IDEAS THAT MAY COME
19 OUT OF THE ADVERTISING DEPARTMENT. AND ALL OF THOSE
20 ADVERTISING RATES ARE RECOMMENDED TO ME BY THE ADVERTISING
21 DEPARTMENT AND APPROVED BY ME.
22 Q. ARE THEY APPROVED BY ANYONE OTHER THAN YOU? DO YOU HAVE
23 TO TAKE THOSE RATES THE SECOND --
24 A. NO, THOSE RATES FOR THE PAST THREE YEARS HAVE BEEN
25 APPROVED BY ME.
1436
1 Q. ABOUT HOW MANY RATES HAVE YOU APPROVED ON YOUR OWN
2 AUTHORITY?
3 A. IN EXCESS OF 350, I WOULD ESTIMATE.
4 Q. ALL RIGHT. NOW, WITH RESPECT TO THESE PERCENTAGE RATE
5 INCREASES THAT YOU REFERRED TO AS ONE OF THE TWO TYPES --
6 A. YES.
7 Q. -- WHAT STANDARDS DO YOU EMPLOY IN DECIDING WHETHER TO
8 MAKE A RECOMMENDATION FOR A RATE PERCENTAGE CHANGE?
9 A. WELL, RATE INCREASES ARE SIGNIFICANT EVENTS FOR NEWSPAPERS
10 BECAUSE OBVIOUSLY YOU GO OUT AND RAISE A RATE, THAT AFFECTS
11 YOUR ENTIRE ADVERTISING BASE.
12 GENERALLY SPEAKING, ADVERTISING RATE INCREASES ARE
13 TIED TO ONE OF TWO THINGS. EITHER CIRCULATION IS GOING UP AND
14 YOU'RE CHARGING FOR MORE READERS, MORE EYEBALLS, OR EXPENSES
15 ARE GOING UP TO THE POINT WHERE YOU NEED TO RAISE RATES TO
16 COVER NEWSPRINT COSTS, FOR INSTANCE.
17 SO IT'S A -- IT'S CERTAINLY A DIFFICULT ANALYSIS
18 THAT NEWSPAPERS TAKE VERY SERIOUSLY BECAUSE YOU HAVE TO WEIGH
19 RAISING RATES.
20 IT'S EASY TO HAVE HIGH RATES AND LOW VOLUME. SO YOU
21 WANT TO FIND A NICE MIX OF HAVING LOTS OF ADS BUT GETTING A
22 GOOD RATE FOR THEM.
23 Q. SINCE YOU'VE BEEN PRESIDENT OF THE AGENCY, ON HOW MANY
24 OCCASIONS HAVE YOU MADE A RECOMMENDATION TO HEARST AND
25 CHRONICLE FOR APPROVAL FOR A RATE INCREASE?
1437
1 A. AN ADVERTISING RATE INCREASE, SINCE I HAVE BEEN PRESIDENT,
2 I THINK HAS ONLY BEEN ONCE.
3 Q. IN THREE YEARS?
4 A. YES. THE CIRCULATION SITUATION BEING WHAT IT IS HAS --
5 HAS MADE IT UNABLE TO RAISE AD RATES FOR THE PAST COUPLE OF
6 YEARS.
7 Q. AND IN THE ONE INSTANCE YOU JUST REFERENCED, DID YOU
8 RECOMMEND A PARTICULAR RATE CHANGE?
9 A. I BELIEVE IT WAS IN THE TWO AND A HALF TO THREE PERCENT
10 RANGE, YES.
11 Q. WAS YOUR RECOMMENDATION ADOPTED BY BOTH HEARST AND
12 CHRONICLE?
13 A. YES.
14 Q. WITHOUT ANY CHANGE?
15 A. WITHOUT ANY CHANGE.
16 Q. NOW, WE'VE BEEN TALKING ABOUT ADVERTISING RATES. LET'S
17 TALK ABOUT CIRCULATION RATES. HOW ARE CIRCULATION RATES
18 ESTABLISHED AT THE AGENCY?
19 A. ACTUALLY THE SAME WAY. THE NEWSPAPER AGENCY RECOMMENDS TO
20 BOTH PRINCIPALS FROM TIME TO TIME CIRCULATION RATE INCREASES.
21 SOMETIMES DECREASES, BUT FROM TIME TO TIME INCREASES.
22 Q. AND WHAT STANDARDS OR GOALS WOULD YOU HAVE IN CONNECTION
23 WITH CHANGING CIRCULATION RATES?
24 A. AGAIN, CIRCULATION RATES ARE GENERALLY CERTAINLY TIED TO
25 COMPETITIVE FORCES IN THE MARKET. YOU CAN'T CHARGE -- YOU
1438
1 CAN'T CHARGE MORE FOR A PRODUCT IF A CONSUMER IS GOING TO STOP
2 SUBSCRIBING TO THAT PRODUCT. SO WE SET RATES, YOU KNOW, TO
3 COVER COSTS, TO COVER DELIVERY COSTS, BUT CERTAINLY IN ANOTHER
4 DELICATE BALANCE WITH COMPETITION IN THE MARKETPLACE.
5 Q. WITH RESPECT TO CIRCULATION RATES, HAVE YOU EVER
6 RECOMMENDED A CHANGE IN RATES TO HEARST AND CHRONICLE THAT WAS
7 NOT APPROVED?
8 A. NO.
9 Q. NOW, DO YOU HAVE CONTRACTS WITH ADVERTISERS?
10 A. YES, WE DO.
11 Q. WHAT'S THE LENGTH OF TIME THAT THOSE CONTRACTS ARE IN
12 EFFECT, IF THERE'S A WAY TO GENERALIZE?
13 A. WE HAVE YEARLY CONTRACTS WITH ADVERTISERS. RETAIL
14 ADVERTISERS, NATIONAL ADVERTISERS AND CLASSIFIED ADVERTISERS.
15 Q. WILL THOSE CONTRACTS REMAIN IN EFFECT IF THIS TRANSACTION
16 WERE TO BE APPROVED AND HEARST WERE TO BUY THE CHRONICLE?
17 A. NOT IN THEIR CURRENT FORM. THE CURRENT CONTRACTS VERY
18 SPECIFICALLY TALK ABOUT A COMBINATION ADVERTISING BUY,
19 CHRONICLE AND EXAMINER. THOSE TERMS WOULD CHANGE, AND WE WOULD
20 RENEGOTIATE ADVERTISING CONTRACTS WITH THOSE ADVERTISERS.
21 Q. DO YOU HAVE ANY ADVERTISING CONTRACTS THAT RESTRICT THE
22 ADVERTISER IN ANY WAY AS TO ADVERTISING WITH SOMEONE ELSE?
23 A. NO.
24 Q. WHAT PERCENTAGE OF SFNA ADVERTISING REVENUE IS FROM
25 SAN-FRANCISCO-BASED LOCAL ADVERTISERS, IF YOU KNOW?
1439
1 A. OUR TOTAL ADVERTISING REVENUE IS $350 MILLION. WE HAVE A
2 SAN-FRANCISCO-ZONED EDITION IN VARIOUS PARTS OF THE PAPER
3 THROUGHOUT THE WEEK.
4 IN 1999 OUR TOTAL SAN-FRANCISCO-ZONED AD REVENUE WAS
5 3.4 MILLION OF THE TOTAL.
6 Q. ON A PERCENTAGE BASIS, ABOUT HOW MUCH WOULD THAT BE?
7 A. ONE PERCENT.
8 Q. WHEN YOU SAY YOU HAVE A SAN-FRANCISCO-ZONED EDITION, CAN
9 YOU EXPLAIN WHAT THAT MEANS?
10 A. WE HAVE GEOGRAPHICALLY DIVIDED UP THE BAY AREA INTO THE
11 KEY STRATEGIC SUBURBAN COMPONENTS. SO WE HAVE ON WEDNESDAYS,
12 FOR INSTANCE, THE FOOD SECTION AND THE HOME SECTION OF THE
13 CHRONICLE.
14 YOU CAN -- IF YOU ARE AN ADVERTISER, YOU CAN BUY A
15 NORTH BAY EDITION, YOU CAN BUY ONE OF TWO EAST BAY, ALAMEDA OR
16 CONTRA COSTA EDITION, YOU CAN BUY A SOUTH BAY EDITION, OR YOU
17 CAN BUY A CITY EDITION; AND YOUR ADVERTISEMENT WOULD APPEAR
18 ONLY IN THAT EDITION.
19 SO WE HAVE THOSE TWO SECTIONS ON WEDNESDAY, AND THE
20 CHRONICLE SUNDAY SECTION IS ALSO ZONED IN THOSE SAME FIVE
21 GEOGRAPHICAL AREAS.
22 Q. HOW MUCH ADVERTISING DO YOU GET FOR THE CHRONICLE
23 SUNDAY-ZONED PRODUCT YOU JUST REFERENCED?
24 A. THE SUNDAY-ZONED PRODUCT IS VERY, VERY SMALL. OUR TOTAL
25 ZONED AD REVENUE FROM ALL OF THOSE ZONES COMBINED FOR LAST YEAR
1440
1 WAS ABOUT $11 MILLION.
2 Q. AND BY "ALL THOSE ZONES," DOES THAT -- ARE YOU REFERRING
3 TO SAN FRANCISCO --
4 A. YES, SAN FRANCISCO, NORTH BAY, EAST BAY, SOUTH BAY,
5 WEDNESDAY, SUNDAY, COMBINED ZONED REVENUE WAS ABOUT 11 MILLION.
6 Q. OUT OF ABOUT 340 MILLION TOTAL?
7 A. 350 MILLION.
8 Q. IF A --
9 A. WE WORKED HARD TO GET THAT 10.
10 Q. IF A SAN-FRANCISCO-BASED LOCAL ADVERTISER WANTED TO PLACE
11 AN AD THAT WOULD ONLY REACH YOUR SAN FRANCISCO CIRCULATION, IS
12 THERE ANY WAY TO DO IT OTHER THAN THE ZONED EDITION YOU JUST
13 REFERENCED?
14 A. NOT TODAY. NOW, IN THE PRESS RELEASE WE TALKED ABOUT A
15 FEW MINUTES AGO, WE ARE FINALLY GOING TO HAVE A SAN FRANCISCO
16 FRIDAY ZONE. WE HAVE FRIDAY STAND-ALONE SECTIONS NOW IN THE
17 NORTH BAY, TWO IN THE EAST BAY, ONE ON THE PENINSULA. AND PART
18 OF OUR STRATEGIC PLAN FOR THE YEAR WAS TO FILL IN THAT FINAL
19 COMPONENT IN SAN FRANCISCO ON BOTH THE CHRONICLE AND EXAMINER.
20 EFFECTIVE FRIDAY MAY 26 WE WILL HAVE TWO SAN
21 FRANCISCO STAND-ALONE EDITIONS FOR ADVERTISING.
22 Q. I BELIEVE YOU INDICATED A MOMENT AGO THAT ALL OF YOUR
23 ZONED ADVERTISING IS A TOTAL OF ABOUT $11 MILLION IN '99?
24 A. YES, 11 MILLION.
25 Q. DOES THAT MEAN THAT THE REST OF THE 350 MILLION WOULD BE
1441
1 ADVERTISEMENTS THAT RUN IN THE ENTIRE BAY AREA THROUGH ALL THE
2 CIRCULATION OF THE CHRONICLE AND EXAMINER?
3 A. YES. AS A MAJOR METROPOLITAN NEWSPAPER OPERATION, WE ARE
4 CERTAINLY A REGIONAL ADVERTISING BUY. I MEAN, MEANT FOR
5 ADVERTISERS REACHING ALL OF NORTHERN CALIFORNIA.
6 MR. HALLING: I HAVE NOTHING FURTHER.
7 THE COURT: VERY WELL. WHO IS GOING TO FURTHER
8 EXAMINE THIS WITNESS ON THE DEFENSE SIDE? ANYBODY?
9 MR. BALABANIAN: YES, YOUR HONOR.
10 THE COURT: MR. BALABANIAN.
11 CROSS-EXAMINATION
12 BY MR. BALABANIAN:
13 Q. MR. FALK, I'M DAVID BALABANIAN. I REPRESENT INTERVENOR
14 EXIN CORPORATION -- I'M SORRY, LLC. MY QUESTION TO YOU, SIR:
15 IS THERE TODAY ANY ECONOMIC COMPETITION BETWEEN THE CHRONICLE
16 AND THE EXAMINER?
17 A. NO.
18 Q. NOT ON AD RATES?
19 A. EVERYTHING THE NEWSPAPER AGENCY DOES IS DONE JOINTLY FOR
20 BENEFIT OF BOTH.
21 Q. SO IF THE FANGS ARE PERMITTED TO BUY THE EXAMINER, WILL
22 THERE BE MORE OR LESS ECONOMIC COMPETITION BETWEEN THE DAILIES
23 THAN THERE IS TODAY?
24 A. THERE WILL CERTAINLY BE MORE. I MEAN, TO THE EXTENT THAT
25 MR. FANG DOES A GOOD JOB HERE LOCALLY, IT WILL BE ONE MORE
1442
1 COMPETITOR ON A RADAR SCREEN FULL OF COMPETITORS. I MEAN, THIS
2 ONE WILL HAPPEN TO BE IN SAN FRANCISCO BUT CERTAINLY WILL NOT
3 BE UNLIKE THE IJ IN MARIN OR THE SAN MATEO TIMES ON THE
4 PENINSULA.
5 Q. TO PUT IT ANOTHER WAY, IF THE FANGS WERE PREVENTED FROM
6 BUYING THE EXAMINER, WOULD THAT TEND TO PROTECT ECONOMIC
7 COMPETITION OR PREVENT ECONOMIC COMPETITION?
8 A. IF THEY DON'T BUY THE EXAMINER, OBVIOUSLY THEY WON'T HAVE
9 A VEHICLE FROM WHICH TO COMPETE WITH US. SO THAT WOULD LEAD TO
10 LESS ECONOMIC COMPETITION.
11 Q. IT WOULD BE ANTICOMPETITIVE?
12 A. YES.
13 Q. NOW, IS THERE TODAY ANY COMPETITION BETWEEN THE CHRONICLE
14 AND THE EXAMINER FOR READERS?
15 A. WELL, AGAIN, WE HAVE -- YOU KNOW, THE NEWSPAPER AGENCY HAS
16 AN ADVERTISING PORTFOLIO THAT INCLUDES JOINT ADVERTISING IN
17 BOTH NEWSPAPERS, AND IT HAS A READERSHIP PORTFOLIO OF A MORNING
18 NEWSPAPER AND AN AFTERNOON NEWSPAPER. SO, I MEAN, WE HAVE --
19 WE HAVE JOINTLY AT OUR DISPOSAL PRODUCTS AND DELIVERY CYCLES
20 AND READERSHIP CYCLES THAT, YOU KNOW, MEET CONSUMERS'
21 EXPECTATIONS EITHER IN THE MORNING OR IN THE AFTERNOON.
22 Q. LET ME ASK YOU A PRELIMINARY QUESTION. ARE THERE PLACES
23 WHERE ONLY ONE OF THE TWO NEWSPAPERS IS DISTRIBUTED?
24 A. NO. I MEAN, WHICH GETS TO WHY THE EXAMINER IS SUCH AN
25 EXPENSIVE DISTRIBUTION ORGANIZATION. YOU CAN GET THE EXAMINER
1443
1 DELIVERED IN REDDING, CALIFORNIA, OR IN SOUTH LAKE TAHOE IF
2 YOU'D LIKE IT.
3 Q. DOES ANYONE MAKE ANY MONEY ON AN EXAMINER DELIVERED IN
4 REDDING, CALIFORNIA?
5 A. NO.
6 Q. ALL RIGHT. WERE YOU PRESENT IN COURT WHEN DR. COMANOR
7 GAVE HIS DEFINITION OF COMPETITIVE NEWSPAPERS?
8 A. I READ SOME OF HIS TESTIMONY THROUGH TRANSCRIPT.
9 Q. YOU RECALL THAT HE SAID NEWSPAPERS ARE ONLY COMPETITIVE
10 WHEN THEY SUBSTITUTE FOR ONE ANOTHER, NOT WHEN THEY'RE
11 COMPLEMENTARY. DID YOU SEE THAT?
12 A. YES, I HEARD THAT TODAY ALSO.
13 Q. AND YOU HEARD MR. FLOOD ADOPT THE SAME DEFINITION?
14 A. YES.
15 Q. CORRECT?
16 NOW, USING THAT DEFINITION, THE DEFINITION OF
17 COMPETITION ADVANCED BY PLAINTIFF'S EXPERT, ARE THE CHRONICLE
18 AND THE EXAMINER TODAY COMPETITIVE ON THE EDITORIAL SIDE?
19 A. I HAVE NEVER HEARD COMPETITION IN THE NEWSPAPER BUSINESS
20 DEFINED AS ONE NEWSPAPER THAT REPLACES ANOTHER. I MEAN,
21 THEY'RE DIFFERENT CYCLES, DIFFERENT PUBLICATION CYCLES. THIS
22 IS A WELL-READ COMMUNITY OF EDUCATED PEOPLE. PEOPLE READ LOTS
23 OF NEWSPAPERS. I DON'T THINK CONSUMERS THINK ABOUT REPLACING
24 ONE FOR THE OTHER COMPETITIVELY.
25 THE COURT: ISN'T THIS OPINION TESTIMONY THAT YOU'RE
1444
1 ELICITING?
2 MR. BALABANIAN: THIS MAN KNOWS MORE ABOUT THE
3 COMPETITION BETWEEN THESE TWO PAPERS, I BELIEVE, YOUR HONOR,
4 THAN ANYONE. BUT LET ME QUICKLY ADDRESS A FACTUAL QUESTION,
5 THEN.
6 THE COURT: ALL RIGHT.
7 BY MR. BALABANIAN:
8 Q. YOU TESTIFIED, DID YOU NOT, SIR, THAT 60 PERCENT OF THE
9 EXAMINER READERS ARE ALSO CHRONICLE READERS?
10 A. YES. GALLUP, AN INDEPENDENT RESEARCH FIRM, DOES EVERY
11 OTHER YEAR READERSHIP RESEARCH, AND THEY TELL US THAT
12 60 PERCENT OF EXAMINER READERS TODAY ALSO READ THE CHRONICLE.
13 Q. SO AS TO 60 PERCENT OF THE EXAMINER READERS, THE PAPERS
14 ARE COMPLEMENTARY AND NOT SUBSTITUTES; CORRECT?
15 A. CLEARLY.
16 Q. SO USING THE DEFINITION ADVANCED BY PLAINTIFF'S EXPERTS,
17 THE CHRONICLE AND THE EXAMINER DO NOT COMPETE TODAY, EVEN ON
18 THE EDITORIAL SIDE, AS TO FULLY TWO-THIRDS OF THE MARKET; WOULD
19 THAT BE CORRECT, SIR?
20 A. THAT'S CORRECT.
21 MR. BALABANIAN: I HAVE NO FURTHER QUESTIONS.
22 THE COURT: MR. ROSCH?
23 MR. ROSCH: NO, YOUR HONOR.
24 THE COURT: NO QUESTIONS? VERY WELL. MR. ALIOTO,
25 YOU MAY CROSS-EXAMINE.
1445
1 YES, WHY DON'T WE TAKE A RECESS. I WAS SO
2 INTERESTED IN YOUR TESTIMONY, MR. FALK, I COMPLETELY FORGOT
3 ABOUT THE RECESS. WE'LL TAKE UNTIL 3:30, AND THEN WE'LL HAVE
4 THE CROSS-EXAMINATION BY MR. ALIOTO.
5 (RECESS TAKEN AT 3:17 P.M.)
6 (CONTINUED ON NEXT PAGE - NOTHING OMITTED.)
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1446
1 (PROCEEDINGS RESUMED AT 3:40 P.M.)
2 THE COURT: VERY WELL, MR. ALIOTO, YOU MAY
3 CROSS-EXAMINE THE WITNESS.
4 MR. ALIOTO: THANK YOU, YOUR HONOR. MAY IT PLEASE
5 YOUR HONOR.
6 CROSS-EXAMINATION
7 BY MR. ALIOTO:
8 Q. A SLIGHT RECAP, YOU'RE THE PRESIDENT AND HAVE BEEN THE
9 PRESIDENT AND THE CHIEF EXECUTIVE OFFICER OF SAN FRANCISCO
10 NEWSPAPER AGENCY SINCE NOVEMBER OF 1996; IS THAT RIGHT?
11 A. YES.
12 Q. AND PRIOR TO THAT TIME YOU SERVED AS THE SENIOR VICE
13 PRESIDENT OF SALES AND MARKETING FOR THE SAN FRANCISCO
14 NEWSPAPER AGENCY; CORRECT?
15 A. YES.
16 Q. AND IN THE CAPACITY OF BOTH OF THOSE -- AND BEFORE THAT,
17 BY THE WAY, YOU ACTED AS THE CIRCULATION DIRECTOR FOR THE
18 CHRONICLE FOR THE SAN FRANCISCO NEWSPAPER AGENCY; IS THAT
19 RIGHT?
20 A. YES.
21 Q. DURING THAT TIME PERIOD, YOU FAMILIARIZED YOURSELF,
22 ESPECIALLY WHEN YOU BECAME THE PRESIDENT AND THE CHIEF
23 EXECUTIVE OFFICER OF THE SAN FRANCISCO NEWSPAPER AGENCY, WITH
24 THE JOINT OPERATING AGREEMENT; DID YOU NOT?
25 A. YES, I READ IT.
1447
1 Q. LET ME SHOW YOU --
2 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
3 THE COURT: YOU MAY.
4 BY MR. ALIOTO:
5 Q. I SHOW YOU WHAT IS IN EVIDENCE AS EXHIBIT NUMBER 1. THIS
6 IS THE JOINT OPERATING AGREEMENT BETWEEN THE CHRONICLE
7 PUBLISHING COMPANY AND THE HEARST PUBLISHING COMPANY DATED
8 OCTOBER OF 1964.
9 THAT IS THE JOINT OPERATING AGREEMENT THAT YOU
10 FAMILIARIZED YOURSELF WITH; IS IT NOT?
11 A. YES.
12 Q. OKAY. NOW, I WANT TO DIRECT YOUR ATTENTION TO THE VERY
13 FIRST PAGE AND IT WOULD BE THE THIRD "WHEREAS" GOING DOWN WHERE
14 IT SAYS, "WHEREAS, FOR MANY YEARS PAST." DO YOU SEE THAT,
15 THIRD ONE DOWN?
16 A. YES, I DO.
17 Q. OKAY. NOW, IT SAYS, QUOTE:
18 "WHEREAS, FOR MANY YEARS PAST THE COSTS
19 INCIDENT TO THE PUBLICATION OF THE SAN FRANCISCO
20 CHRONICLE, THE SAN FRANCISCO EXAMINER AND THE
21 NEWS CALL BULLETIN HAVE BEEN INCREASING STEADILY
22 AS A RESULT OF WHICH HEARST HAS, IN RECENT
23 YEARS, INCURRED DEFICITS WITH RESPECT TO THE
24 PUBLICATION, SALE AND DISTRIBUTION OF ITS
25 AFORESAID NEWSPAPERS."
1448
1 DO YOU SEE THAT?
2 A. YES.
3 Q. SO WHEN YOU FAMILIARIZED YOURSELF WITH THE AGREEMENT, YOU
4 UNDERSTOOD, DID YOU NOT, THAT FOR THE NEWSPAPERS THAT WERE
5 BEING PUT OUT BY THE HEARST CORPORATION, THAT THEY WERE
6 SUFFERING A DEFICIT IN 1964; CORRECT?
7 A. THAT'S WHAT IT SAYS.
8 Q. YES. BUT YOU -- I'LL ASK YOU AGAIN.
9 WHEN YOU FAMILIARIZED YOURSELF WITH THE JOINT
10 OPERATING AGREEMENT, YOU WERE AWARE, WERE YOU NOT, THAT THE
11 HEARST CORPORATION WAS OPERATING AT A DEFICIT IN 1964?
12 A. TO BE HONEST, THIS IS -- WE'VE SPENT MORE TIME ON THIS
13 PARAGRAPH RIGHT NOW THAN I EVER DID READING IT. I READ IT. I
14 DON'T KNOW THAT I THOUGHT ABOUT IT.
15 Q. OKAY. SO IT'S YOUR TESTIMONY THAT YOU DON'T KNOW, YOU AS
16 THE CHIEF EXECUTIVE OFFICER AND THE PRESIDENT OF THE SAN
17 FRANCISCO NEWSPAPER AGENCY ARE UNAWARE OF THE FACT THAT THE
18 JOINT OPERATING AGREEMENT WAS PUT INTO EFFECT IN 1964 BECAUSE
19 THE HEARST CORPORATION WAS OPERATING AT A DEFICIT; IS THAT YOUR
20 TESTIMONY?
21 A. I DO NOT KNOW THAT.
22 Q. YOU DIDN'T KNOW ONE WAY OR ANOTHER?
23 A. IN 1965, NO.
24 Q. NO. WHEN YOU BECAME -- I'LL DO IT AGAIN. WHEN YOU BECAME
25 THE PRESIDENT AND CHIEF EXECUTIVE OFFICER OF SAN FRANCISCO
1449
1 NEWSPAPER AGENCY, YOU FAMILIARIZED YOURSELF WITH THIS
2 AGREEMENT; DID YOU NOT?
3 A. I READ IT.
4 Q. OKAY.
5 A. NO ONE EXPLAINED THIS PARAGRAPH.
6 Q. AND IS IT CORRECT -- IS IT CORRECT NOW --
7 THE COURT: LET'S HAVE ONE PERSON TALK AT A TIME.
8 BY MR. ALIOTO:
9 Q. AND IS IT NOW CORRECT THAT YOU DID NOT NOTICE THE FACT
10 THAT THE REASON THEY HAD THE JOINT OPERATING AGREEMENT IN THE
11 FIRST PLACE WAS BECAUSE HEARST WAS OPERATING AT A DEFICIT? IS
12 THAT YOUR TESTIMONY?
13 A. I RECOGNIZED THE FACT THAT THE PURPOSE OF THE JOA WAS THAT
14 BOTH WERE OPERATING AT DEFICITS.
15 Q. OKAY. SO YOU UNDERSTOOD THAT NOT ONLY WAS THE HEARST
16 CORPORATION OPERATING AT A DEFICIT, BUT SO WAS THE CHRONICLE;
17 IS THAT YOUR UNDERSTANDING?
18 A. THAT'S WHAT I'VE HEARD, YES.
19 Q. OKAY. BUT THAT'S NOT WHAT IT SAYS; RIGHT?
20 A. THIS PARAGRAPH POINTS TO WHAT IT SAYS, CHRONICLE, EXAMINER
21 AND NEWS CALL BULLETIN.
22 Q. AND IT SAYS:
23 "... AS A RESULT OF WHICH HEARST HAS IN RECENT
24 YEARS INCURRED DEFICITS WITH RESPECT TO THE
25 PUBLICATION, SALE AND DISTRIBUTION OF ITS
1450
1 AFORESAID NEWSPAPERS."
2 DO YOU SEE THAT?
3 A. YES.
4 Q. ALL RIGHT. WELL, LET'S JUST TAKE THAT.
5 MR. ALIOTO: MAY I USE THE EASEL, YOUR HONOR?
6 THE COURT: YES, YOU MAY.
7 BY MR. ALIOTO:
8 Q. THIS IS EXHIBIT 1. DID YOU TRY TO FAMILIARIZE YOURSELF
9 WITH WHY THEY HAD A JOINT OPERATING AGREEMENT IN THE FIRST
10 PLACE?
11 A. I FELT I KNEW WHY.
12 Q. BUT YOU DIDN'T KNOW THAT IT WAS BECAUSE HEARST HAD A
13 DEFICIT; IS THAT RIGHT?
14 A. I THOUGHT THEY BOTH HAD DEFICITS.
15 Q. SO YOU WERE WRONG ABOUT THAT; RIGHT?
16 A. I DON'T KNOW.
17 Q. IT DOESN'T SAY THAT; DOES IT? YOU WERE WRONG ABOUT IT;
18 WEREN'T YOU?
19 A. THIS PARAGRAPH SAYS HEARST INCURRED DEFICITS WITH RESPECT
20 TO PUBLICATION, SALE AND DISTRIBUTION OF ITS AFORESAID
21 NEWSPAPERS.
22 Q. OKAY. SO WE'RE GOING TO PUT -- THIS IS IN THE "WHEREAS."
23 THE FIRST PAGE, HEARST DEFICIT.
24 NOW, DEFICIT MEANT TO YOU THEY WERE LOSING MONEY,
25 RIGHT, OR DOES MEAN TO YOU NOW; RIGHT?
1451
1 A. YES.
2 Q. OKAY. THE NEXT SENTENCE, NEXT PARAGRAPH, QUOTE:
3 "WHEREAS, CHRONICLE AND HEARST ARE CONVINCED
4 THAT ONLY..."
5 DO YOU SEE "ONLY"?
6 A. YES.
7 Q. OKAY.
8 "... THAT ONLY BY THE CREATION OF A JOINT
9 PRINTING PRODUCING FACILITY IN WHICH THEIR
10 RESPECTIVE MECHANICAL, ADVERTISING, BUSINESS AND
11 CIRCULATION DEPARTMENTS ARE INTEGRATED
12 (CONFORMING TO WHAT HAS BECOME AN ACCEPTED
13 PROCEDURE IN THE NEWSPAPER BUSINESS IN MANY
14 CITIES THROUGHOUT THE UNITED STATES) AND BY THE
15 CONSOLIDATION OF THE HEARST MORNING DAILY AND
16 AFTERNOON DAILY NEWSPAPERS INTO AN AFTERNOON
17 DAILY NEWSPAPER CAN THE NECESSARY OPERATIONAL
18 EFFICIENCIES BE EFFECTED WHICH, IN THE FACE OF
19 INCREASING PUBLISHING COSTS AND EXPENSES, WILL
20 ENABLE BOTH CHRONICLE AND HEARST TO SURVIVE AS
21 PUBLISHERS OF SEPARATE AND INDEPENDENT
22 NEWSPAPERS."
23 DO YOU SEE THAT?
24 A. YES.
25 Q. DID YOU, WHEN YOU FAMILIARIZED YOURSELF WITH THE JOA, DID
1452
1 YOU AGREE THAT THE JOINT OPERATING AGREEMENT WAS THE ONLY WAY
2 IN WHICH -- WHICH WOULD ENABLE BOTH THE CHRONICLE AND HEARST TO
3 SURVIVE AS PUBLISHERS OF SEPARATE AND INDEPENDENT NEWSPAPERS?
4 DID YOU AGREE WITH THAT?
5 A. I READ IT.
6 Q. DID YOU AGREE WITH IT?
7 A. I HAVE NO REASON TO DISAGREE WITH IT.
8 Q. OKAY. I WANT TO BE CLEAR HERE NOW.
9 MR. ALIOTO: IF I MAY APPROACH THE EASEL AGAIN, YOUR
10 HONOR.
11 THE COURT: YOU MAY.
12 BY MR. ALIOTO:
13 Q. OKAY. IT SAYS ONLY, ONLY THE JOA. WHEN YOU FAMILIARIZED
14 YOURSELF WITH THAT, YOU UNDERSTOOD, DID YOU NOT, THERE WAS NO
15 OTHER WAY THAT THESE TWO PAPERS WOULD BE ABLE TO CONTINUE TO
16 PUBLISH SEPARATE AND INDEPENDENT NEWSPAPERS; CORRECT?
17 A. THEY WERE CONVINCED AT THAT TIME, YES, THAT'S WHAT IT
18 SAYS.
19 Q. OKAY. NOW, YOU HEARD -- AND THEN AFTER THAT IT IS
20 CORRECT, IS IT NOT, THAT -- LET ME SHOW YOU WHAT IS MARKED FOR
21 IDENTIFICATION -- NO, IT'S IN EVIDENCE AS EXHIBIT NUMBER 23 --
22 93.
23 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
24 THE COURT: YES. THE NUMBER IS WHAT?
25 MR. ALIOTO: 93.
1453
1 THE COURT: 93.
2 MR. ALIOTO: YES, SIR.
3 Q. EXHIBIT 93 IS A DOCUMENT DATED SEPTEMBER 23, 1999. IT IS
4 ON THE HEARST MEMORANDA AND IT IS SIGNED BY MR. GEORGE IRISH.
5 IT REFERS TO THE DOCUMENTS THAT SUMMARIZE THE FINANCIAL
6 PROJECTIONS FOR SAN FRANCISCO EXAMINER, SAN FRANCISCO NEWSPAPER
7 AGENCY, FOR THE YEARS THROUGH 2003. THE 1999 MARKETING PLAN
8 WAS PREPARED BY THE AGENCY AND IS THE LATEST AVAILABLE.
9 IT IS CORRECT THAT YOU SAW THAT DOCUMENT ON OR ABOUT
10 THAT DATE; DIDN'T YOU?
11 A. (WITNESS EXAMINES DOCUMENT.) THE ATTACHMENT, YES.
12 Q. LET ME ADD, AFTER ONLY --
13 MR. ALIOTO: IF I MAY USE THE EASEL AGAIN, YOUR
14 HONOR.
15 THE COURT: YOU MAY.
16 BY MR. ALIOTO:
17 Q. AFTER "ONLY," "ONLY THE JOA," I THINK IT'S IMPORTANT, I'M
18 GOING TO PUT "ENABLE," I'M WRITING IT DOWN SO WE'LL REFER TO IT
19 A LITTLE BIT LATER, "ENABLE BOTH." DO YOU SEE "BOTH," WHERE IT
20 SAYS "BOTH"?
21 A. YES.
22 Q. "... BOTH CHRONICLE AND EXAMINER AND HEARST" -- SORRY,
23 "AND HEARST TO SURVIVE." DO YOU SEE THAT? DO YOU SEE THAT
24 "SURVIVE"?
25 A. YES.
1454
1 Q. "... AS PUBLISHERS OF SEPARATE..." "SEPARATE," DO YOU SEE
2 THAT?
3 A. YES.
4 Q. "... AND INDEPENDENT..." DO YOU SEE THAT, "INDEPENDENT"?
5 A. YES.
6 Q. YES. "... NEWSPAPERS."
7 NOW, LOOKING AT YOUR MOST -- LOOKING AT THE MOST
8 RECENT DOCUMENTS FROM THE SAN FRANCISCO NEWSPAPER AGENCY, THIS
9 IS IN REFERENCE TO THE EXAMINER. IF YOU'LL TURN TO WHAT IS
10 BATES NUMBER 13682. IT'S PAGE 3. ARE YOU THERE?
11 A. YES.
12 Q. OKAY. AND THAT IS HEADNOTED "SAN FRANCISCO EXAMINER
13 INCOME STATEMENT." DO YOU SEE THAT?
14 A. YES.
15 Q. OKAY. AND THEN FOR 1999 UNDER "NET PROFIT," I'M GOING TO
16 GET IN THE WAY OF THIS, BUT IN NET PROFIT -- OOPS, TOO MANY
17 BOOKS -- DO YOU SEE WHERE IT SAYS "NET PROFIT"?
18 A. YES.
19 Q. OKAY. 1998, 22 MILLION; 1999, 20 MILLION. DO YOU SEE IT?
20 A. YES.
21 Q. OKAY. 2000, 21 MILLION FOR THE EXAMINER; CORRECT?
22 A. YES.
23 Q. 2001, 22,840,000. DO YOU SEE THAT?
24 A. YES.
25 Q. 2002, 23 MILLION. DO YOU SEE THAT?
1455
1 A. YES.
2 Q. 2003, 25 MILLION. DO YOU SEE THAT?
3 A. YES, I DO.
4 Q. AND THAT ACCORDS WITH YOUR UNDERSTANDING THAT THE AMOUNT
5 OF WHAT THEY CALL THE NET EXCESS -- AND THIS IS NET PROFIT --
6 BUT EVEN THE NET EXCESS WOULD AND CONTINUES TO INCREASE SINCE
7 1999; IS THAT RIGHT?
8 A. THAT'S WHAT THE NUMBERS INDICATE, YES.
9 Q. WELL, ARE THEY TRUE?
10 A. IT'S A PROJECTION.
11 Q. ARE THEY TRUE? ARE THEY THE BEST PROJECTION THAT THE SAN
12 FRANCISCO NEWSPAPER AGENCY COULD DO AT THE TIME SEPTEMBER 23,
13 1999?
14 A. THE NEWSPAPER AGENCY WOULD HAVE PROJECTED EVERYTHING
15 EXCEPT THE EDITORIAL EXPENSE LINE; AND, YES, IT WOULD BE AN
16 ACCURATE PROJECTION BASED ON OUR BEST INFORMATION AT THAT TIME.
17 Q. OKAY. AND YOU ALSO -- NOW, THAT MEANS THAT THE HEARST
18 CORPORATION IT IS ESTIMATED THAT AT LEAST THROUGH 2003 WILL BE
19 MAKING PROFITS OVER $20 MILLION EACH YEAR; CORRECT?
20 A. THAT'S THE PROJECTION.
21 Q. AND THEY'RE INCREASING EACH YEAR; CORRECT?
22 A. YES.
23 Q. AND WHILE THEY ARE DOING THAT, BOTH PAPERS WILL BE
24 SURVIVING; CORRECT?
25 A. UNDER THE JOA, YES.
1456
1 Q. YES, UNDER THE JOA.
2 AND BOTH WILL BE INDEPENDENT; CORRECT?
3 A. YES.
4 Q. AND BOTH WILL BE SEPARATE; CORRECT?
5 A. YES.
6 Q. OKAY. AND IT GOES TO 2005; DOES IT NOT?
7 A. THIS DOCUMENT IS 2003.
8 Q. THIS GOES TO 2003. THE JOA GOES TO 2005; DOES IT NOT?
9 A. YES.
10 Q. OKAY. NOW, YOU WERE IN COURT AND YOU HEARD COUNSEL FOR
11 CHRONICLE SAY THAT THE CHRONICLE WOULD NOT BREAK ITS CONTRACT,
12 THAT THEY BELIEVE THE CONTRACT, THE JOA, IS A BINDING CONTRACT
13 AND THEY ARE GOING TO STICK IT OUT TO 2005. YOU HEARD THAT;
14 DID YOU NOT? YOU WERE HERE.
15 MR. ROSCH: OBJECTION, YOUR HONOR. THAT IS NOT WHAT
16 I SAID. IF THERE WERE NO OTHER AGREEMENT --
17 MR. ALIOTO: IT'S ALMOST WORD FOR WORD, BUT I'M NOT
18 GOING TO QUIBBLE ABOUT IT.
19 MR. ROSCH: IF THERE WERE NO OTHER AGREEMENT, THEY
20 WOULD STICK IT OUT TO 2005.
21 THE COURT: THIS IS CROSS-EXAMINATION. OBJECTION
22 OVERRULED.
23 BY MR. ALIOTO:
24 Q. DID YOU HEAR THAT?
25 A. I HEARD -- YES, I HEARD THAT.
1457
1 Q. OKAY. SO YOU KNOW -- AND YOU'RE SUPPOSED TO BE WORKING
2 FOR BOTH THE PAPERS; RIGHT?
3 A. THAT'S RIGHT.
4 Q. OKAY. YOU KNOW THAT IF THE JOA STAYS IN EFFECT, THAT THE
5 EXAMINER, NO MATTER ALL THE OTHER DIRE THINGS THAT WE'VE HEARD
6 TODAY, THAT THE EXAMINER WILL SURVIVE AS A NEWSPAPER AND MAKE
7 MONEY UNDER THE JOA; CORRECT? YOU KNOW THAT?
8 A. UNDER THOSE PROJECTIONS, YES.
9 Q. AND SO WILL THE CHRONICLE; CORRECT?
10 A. I DON'T KNOW IF THE CHRONICLE WILL MAKE MONEY. I DON'T
11 HAVE THOSE STATISTICS. IT WILL MOST LIKELY BE IN BUSINESS AND
12 SEPARATE AND INDEPENDENT, YES.
13 Q. YOU YOURSELF KNOW --
14 MR. ALIOTO: IF I MAY USE THE EASEL AGAIN, YOUR
15 HONOR.
16 THE COURT: YES.
17 BY MR. ALIOTO:
18 Q. JUST SO WE CAN RECAP, THE MONEY FROM THE -- THE MONEY OR
19 REVENUE OF THE NEWSPAPERS THAT COMES IN IS ADVERTISING. I'LL
20 PUT ADS AND CIRCULATION. THAT IS THE BASIC SOURCE OF REVENUE
21 FOR THESE NEWSPAPERS; IS THAT RIGHT?
22 A. YES.
23 Q. AND THAT COMES INTO THE CHRONICLE AND THE EXAMINER;
24 CORRECT?
25 A. YES. WELL, IT COMES INTO THE NEWSPAPER AGENCY.
1458
1 Q. OKAY. FLOWING TO THE SAN FRANCISCO NEWSPAPER AGENCY.
2 AND YOU ARE THE PRESIDENT AND CHIEF EXECUTIVE
3 OFFICER OF THIS, THE SAN FRANCISCO NEWSPAPER AGENCY; RIGHT?
4 A. TECHNICALLY THAT'S UPSIDE DOWN. THE NEWSPAPER AGENCY
5 SHOULD COME FIRST.
6 Q. WELL, I'M GOING TO PUT CHRONICLE AND EXAMINER DOWN BELOW
7 ALSO.
8 A. OKAY.
9 Q. I'M JUST TRYING TO SHOW THAT YOU HAVE TO HAVE THE PAPER
10 OUT THERE TO GET THE ADS AND CIRCULATION, OKAY?
11 A. OKAY.
12 Q. ALL RIGHT. MONEY COMES INTO THE SAN FRANCISCO NEWSPAPER
13 AGENCY. YOU RUN THE WHOLE SHOW AND YOU DEDUCT THE EXPENSES,
14 AND WHATEVER IS LEFT OVER IS CALLED THE NET EXCESS; CORRECT?
15 A. YES.
16 Q. WE'LL CALL THAT OUT HERE NET EXCESS. NET EXCESS.
17 AND THEN YOU SPLIT THAT NET EXCESS 50-50; RIGHT?
18 A. YES.
19 Q. 50-50, AND THAT'S TO HEARST OR THE EXAMINER AND TO THE
20 CHRONICLE; IS THAT RIGHT?
21 A. YES.
22 Q. OKAY. NOW, THIS NET EXCESS, SINCE YOU'RE RUNNING THE
23 SHOW, YOU HAVE BEEN ASKED FROM TIME TO TIME, HAVE YOU NOT, TO
24 MAKE SOME KIND OF PROJECTIONS OF THE FUTURE AS TO WHAT WOULD BE
25 HAPPENING WITH REGARD TO THE NET EXCESS IN THE FUTURE,
1459
1 PROJECTIONS; CORRECT?
2 A. YES.
3 Q. AND YOU HAVE DONE THAT AND YOUR PROJECTIONS HAVE SHOWN --
4 YOUR OWN PROJECTIONS HAVE SHOWN THE NET EXCESS HAS CONTINUED TO
5 INCREASE SINCE 1999; IS THAT NOT RIGHT?
6 A. THAT'S CORRECT.
7 Q. AND HOW FAR HAVE YOU GONE, UP TO 2004 OR SO?
8 A. GENERALLY IT'S A FIVE-YEAR PROJECTION.
9 Q. OKAY. '99 TO 2004, 2005?
10 A. 2004.
11 Q. RIGHT. THE LAST GUY WHO ASKED YOU TO DO THAT WAS HEARST;
12 RIGHT?
13 A. I BELIEVE SO.
14 Q. SO THEY ASKED YOU TO DO A PROJECTION WHETHER OR NOT THERE
15 WOULD BE ANY MONEY COMING IN FROM 1999 GOING FORWARD, YOU DID
16 IT AND YOU TOLD THEM YOU'RE GOING TO MAKE MONEY; RIGHT?
17 A. I TOLD THEM WHAT THE AGENCY'S PROJECTION FOR GROSS EXCESS
18 WOULD BE, YES.
19 Q. OKAY. AND THE CATEGORIES OF DOLLARS THAT YOU WERE TALKING
20 ABOUT WERE FROM WHAT TO WHAT? APPROXIMATELY.
21 A. ON GROSS EXCESS?
22 Q. YES, THE NET EXCESS.
23 A. ONE HUNDRED --
24 Q. THIS NET EXCESS THAT WOULD BE SPLIT.
25 A. 110 MILLION TO 120 MILLION.
1460
1 Q. OKAY. SO OVER THE TIME PERIOD FROM 110 TO 120. SO THE
2 50-50 DEAL WOULD BE FROM 55 MILLION EACH TO 60 MILLION EACH;
3 RIGHT?
4 A. YES.
5 Q. AND YOU UNDERSTAND THE EDITORIAL COSTS AND THE
6 DEPRECIATION THAT THEY WOULD TAKE OFF OF THAT BEFORE THEY DO
7 THEIR PROFIT IS IN THE RANGE OF ABOUT 25 MILLION OR SO; IS THAT
8 RIGHT?
9 A. FOR THE EXAMINER, YES.
10 Q. OKAY. SO IF THE EXAMINER, GOING UP TO EVEN THE 60 NUMBER,
11 IF YOU TOOK 25 OFF, AT LEAST IN THEIR LAST YEAR GOING DOWN THE
12 ROAD THAT YOU WERE DOING, THEY'D BE MAKING $35 MILLION PROFIT;
13 IS THAT RIGHT?
14 A. YES.
15 Q. NOW, MAKING THAT MONEY AND OPERATING UNDER THE JOA AT
16 LEAST TO THE END OF THE JOA IT IS CORRECT, IS IT NOT, THAT THEY
17 WOULD NOT HAVE TO FIRE ANYBODY?
18 A. I DON'T UNDERSTAND YOUR QUESTION.
19 Q. WELL, I THOUGHT YOU GAVE ME SOME DOCUMENTS HERE WHEN YOU
20 WERE --
21 A. PEOPLE ARE FIRED FROM TIME TO TIME UNFORTUNATELY.
22 Q. WAIT A MINUTE. I THINK YOU GAVE US SOME DOCUMENTS ON YOUR
23 DIRECT EXAMINATION. I THOUGHT THAT ONE OF THE BIG SAVINGS THAT
24 YOU WERE TALKING ABOUT WAS THE PAYROLL.
25 A. OF COURSE.
1461
1 Q. OKAY. WELL, YOU DON'T HAVE TO DO IT UNDER THIS PROGRAM;
2 DO YOU?
3 A. LAYOFF EMPLOYEES?
4 Q. YES.
5 A. NO.
6 Q. SO YOU CAN KEEP THE EMPLOYEES, YOU CAN KEEP THE EDITORIAL
7 STAFF AT 200 OR WHATEVER IT IS, YOU DON'T HAVE TO FIRE ANYBODY
8 AND THE EXAMINER IS MAKING MONEY AND THE CHRONICLE IS MAKING
9 MONEY IF THE JOA STAYS IN EFFECT; IS THAT NOT TRUE?
10 A. YES, AND CIRCULATION WILL CONTINUE TO DECLINE.
11 Q. ALL RIGHT. AND THE CIRCULATION, BY THE WAY, THAT'S YOUR
12 JOB; ISN'T IT?
13 A. YES, IT IS.
14 Q. OKAY. SO YOU HAVEN'T BEEN DOING SUCH A GOOD JOB; IS THAT
15 IT?
16 A. ONE COULD DRAW THAT CONCLUSION, BUT --
17 Q. I DON'T MEAN TO BE FACETIOUS. I'M ASKING YOU IN A SERIOUS
18 VEIN. IT'S YOUR PROBLEM, THERE'S SOME PROBLEM GOING ON BUT
19 IT'S YOUR JOB; RIGHT?
20 A. YOU CANNOT SEPARATE NEWSPAPER AGENCY PERFORMANCE FROM THE
21 EDITORIAL PRODUCT THAT CONSUMERS MAY OR MAY NOT WANT TO READ
22 TODAY.
23 Q. OKAY. SO IS IT YOUR VIEW THAT THE REASON THAT THE
24 CIRCULATION IS GOING DOWN IS NOT MARKETING BUT IT'S THE
25 EDITORIAL PROBLEMS? IN OTHER WORDS, NOBODY WANTS TO READ WHAT
1462
1 THESE EDITORS ARE WRITING; IS THAT IT?
2 A. I THINK THAT'S AN OVERSTATEMENT, BUT THAT COMBINED WITH A
3 VERY COMPETITIVE SUBURBAN MARKETPLACE, YES, PEOPLE, CONSUMERS
4 MAKE CHOICES. LATELY THEY HAVEN'T BEEN CHOOSING AS MANY OF OUR
5 PAPERS AS THEY HAVE IN THE PAST.
6 Q. YOU WERE AWARE, WERE YOU NOT, THAT BEGINNING AT LEAST IN
7 1995 THE EXAMINER OR THE HEARST CORPORATION HAS PREPARED AND
8 WAS PREPARING STUDIES FOR THE PURPOSE OF GETTING PREPARED FOR
9 THE END OF THE JOA IN 2005?
10 A. I HAD HEARD ABOUT THAT, YES.
11 Q. RIGHT. AND YOU UNDERSTOOD THAT WHAT THE HEARST
12 CORPORATION WAS PLANNING TO DO IS TO PUT THEM IN THE POSITION
13 DURING THESE FIVE YEARS SO THAT THEY WOULD BE ABLE TO HAVE A
14 PAPER OF A CIRCULATION OF AT LEAST 300,000?
15 A. I CAN'T SAY I WAS DIRECTLY INVOLVED IN ANY OF THOSE
16 DISCUSSIONS, BUT I HAVE --
17 Q. BUT THAT'S WHAT YOU HEARD?
18 A. I HAVE HEARD THAT, YES.
19 Q. RIGHT, YOU HEARD IT. SO YOU KNEW IT AND YOU HEARD IT FROM
20 HEARST PEOPLE; DIDN'T YOU?
21 A. I CAN'T REMEMBER EXACTLY WHERE I WOULD HAVE HEARD IT.
22 Q. SO AS THE CHIEF EXECUTIVE OFFICER AND THE PRESIDENT OF THE
23 SAN FRANCISCO NEWSPAPER AGENCY, YOU UNDERSTOOD THAT NOT ONLY
24 WOULD THESE PAPERS BE MAKING MONEY, BUT ALSO DURING THIS
25 INTERIM THE HEARST CORPORATION WAS PREPARING ITSELF FOR
1463
1 HEAD-TO-HEAD COMPETITION AGAINST THE CHRONICLE AT THE
2 CONCLUSION OF THE JOA; ISN'T THAT RIGHT?
3 A. I HEARD THAT TALK, YES.
4 THE COURT: WHEN YOU ASK THE QUESTION HEARST
5 CORPORATION WAS PUTTING THEM IN A POSITION TO HAVE 300,000
6 DAILY CIRCULATION?
7 MR. ALIOTO: HEARST WAS PREPARING ITS OWN PROGRAM
8 AND PLAN TO PUT ITSELF IN THE POSITION IN 2005 TO COMPETE HEAD
9 TO HEAD, AND BY THAT TIME ANTICIPATING 300,000 CIRCULATION.
10 THE COURT: FOR THE EXAMINER?
11 MR. ALIOTO: FOR THE EXAMINER. SORRY, YOUR HONOR.
12 THE WITNESS: I NEVER HEARD A CIRCULATION NUMBER OF
13 300,000. WHERE DID THAT COME FROM?
14 THE COURT: WELL, WHAT DID YOU HEAR?
15 THE WITNESS: I HAD HEARD GENERALLY POSTURING KINDS
16 OF STATEMENTS. I MEAN, I'VE BEEN WORKING IN THIS 50-50
17 ENTERPRISE SINCE 1987, AND THERE HAS BEEN MORE POSTURING GOING
18 ON OVER THAT PERIOD OF TIME THAN, YOU KNOW, I CAN COUNT AND
19 THIS WAS MORE OF IT. WE JUST TRIED TO STAY FOCUSED ON THE
20 BUSINESS.
21 MR. ALIOTO: I'LL SHOW YOU -- MAY I APPROACH THE
22 WITNESS, YOUR HONOR?
23 THE COURT: YOU MAY.
24 BY MR. ALIOTO:
25 Q. LET ME SHOW YOU EXHIBIT 83. EXHIBIT 83 IS ENTITLED "SAN
1464
1 FRANCISCO EXAMINER BUSINESS PLAN JULY 24, 1995, FIRST DRAFT."
2 I ASK YOU, SIR, IF YOU WILL LOOK AT THIS, IF THERE IS ANY
3 PORTION OF THIS DOCUMENT THAT YOU HAVE SEEN BEFORE.
4 A. (WITNESS EXAMINES DOCUMENT.) I BELIEVE YOU SHOWED THIS TO
5 ME IN A DEPOSITION.
6 Q. HAVE YOU SEEN IT BEFORE?
7 A. NO.
8 Q. OR ANY PORTION OF IT?
9 A. NO.
10 Q. HAS ANYONE EVER GIVEN YOU ANY -- HAS ANYONE FROM HEARST
11 EVER STATED TO YOU IN SUM OR SUBSTANCE THAT WHEN THE JOA
12 TERMINATES IN 2000 --
13 MR. ALIOTO: IT'S NOT IN EVIDENCE? IT IS OR IS NOT?
14 MR. SHULMAN: NO, IT'S NOT.
15 MR. ALIOTO: IT IS NOT IN EVIDENCE.
16 WE WOULD OFFER WHAT IS MARKED FOR IDENTIFICATION AS
17 EXHIBIT 83, YOUR HONOR, THE DOCUMENT THAT I IDENTIFIED.
18 MR. HALLING: OBJECTION, YOUR HONOR. THERE'S NO
19 FOUNDATION. IT'S HEARSAY.
20 MR. ALIOTO: I WILL -- THE DOCUMENT ALONG WITH
21 OTHERS WAS PASSED ON TO MR. BENNACK. I WILL -- I WOULD OFFER
22 THE DOCUMENT AT THIS TIME SUBJECT TO A MOTION TO TIE IT AT THE
23 TIME THAT MR. BENNACK COMES ONTO THE STAND.
24 MR. HALLING: SAME OBJECTION, YOUR HONOR.
25 THE COURT: I'LL RECEIVE IT SUBJECT TO IT BEING
1465
1 STRUCK IN THE EVENT THAT A FOUNDATION IS NOT LAID WITH
2 MR. BENNACK.
3 MR. ALIOTO: VERY GOOD, YOUR HONOR.
4 (PLAINTIFF'S EXHIBIT 83
5 RECEIVED IN EVIDENCE)
6 BY MR. ALIOTO:
7 Q. HAVE YOU EVER BEEN ADVISED IN SUM OR SUBSTANCE THAT IT
8 WAS, QUOTE:
9 "THE INTENTION OF HEARST CORPORATION TO
10 MAINTAIN A NEWSPAPER PRESENCE AND COMPETE FOR
11 THE MARKETPLACE FOLLOWING THE DEMISE OF JOA"?
12 DID ANY REPRESENTATIVE OF HEARST EVER MAKE SUCH A
13 STATEMENT TO YOU IN SUM OR SUBSTANCE?
14 A. AGAIN, I HAD HEARD THAT TALK. I'M NOT SURE IT CAME
15 DIRECTLY FROM -- OR WHO IT CAME FROM.
16 Q. OKAY. DID ANY REPRESENTATIVE OF HEARST AT ANY TIME STATE
17 TO YOU IN SUM OR SUBSTANCE, QUOTE:
18 "THE SAN FRANCISCO EXAMINER WILL BE A
19 300,000 CIRCULATION NEWSPAPER OF WHICH 225,000
20 WILL BE CONTROLLED CIRCULATION AND THE BALANCE
21 PAID SINGLE COPIES"?
22 A. THIS IS THE FIRST TIME I'VE EVER HEARD THAT.
23 THE COURT: WHAT IS A CONTROLLED CIRCULATION?
24 THE WITNESS: CONTROLLED CIRCULATION IS A TERM THAT
25 JUST -- THAT MEANS YOU WOULD CONTROL THE GEOGRAPHY, CONTROL THE
1466
1 GEOGRAPHIC CIRCULATION BOUNDARY.
2 THE COURT: I SEE. YOU TARGET YOUR CIRCULATION FOR
3 CERTAIN GEOGRAPHIC AREAS; IS THAT IT?
4 THE WITNESS: YES.
5 THE COURT: OKAY. THANK YOU.
6 BY MR. ALIOTO:
7 Q. YOU UNDERSTOOD, DID YOU NOT, IN 1996 THAT THERE WAS AN
8 EFFORT BY THE CHRONICLE TO ATTEMPT TO HAVE THE HEARST
9 CORPORATION SHUT DOWN THE EXAMINER AND ENTER INTO A PARTNERSHIP
10 WITH THE CHRONICLE?
11 A. AGAIN, BEING IN THE MIDDLE OF A 50-50 RELATIONSHIP, I HEAR
12 LOTS OF THINGS AND, YES, I HAD HEARD THAT.
13 Q. AND THE IDEA THERE WAS, IS THAT THE EXAMINER -- THE HEARST
14 CORPORATION WAS GOING TO SHUT DOWN THE EXAMINER BUT GET -- BUT
15 GET A PERCENTAGE OF THE PROFITS FROM THE PAPER RUN BY THE
16 CHRONICLE; CORRECT?
17 A. NO ONE EVER FILLED ME IN ON THE DETAILS.
18 Q. BY THE WAY, LET ME BACK UP. YOU SAY NO ONE FILLED YOU IN
19 ON THE DETAILS. DID THEY IN SUM OR SUBSTANCE -- DID YOU
20 UNDERSTAND THAT THERE WAS AN EFFORT BY HEARST AND THE CHRONICLE
21 TO SHUT DOWN THE EXAMINER AND MAKE SOME KIND OF SPLIT THAT
22 WOULD CONTINUE IN PERPETUITY SO --
23 A. I KNEW SPECIFICALLY THAT I HAD BEEN REQUESTED FROM TIME TO
24 TIME TO DO THIS A.M. ONLY ANALYSIS ASSUMING THE EXAMINER WOULD
25 BE CLOSED. SO, OF COURSE, I ASSUMED THAT THERE WAS SOMETHING
1467
1 GOING ON RELATED TO THAT REQUEST.
2 Q. DID YOU UNDERSTAND, THEN, THAT THE HEARST CORPORATION WAS
3 GOING TO GET PAID A PERCENTAGE OF WHATEVER THE CHRONICLE DID IN
4 PERPETUITY?
5 A. I NEVER KNEW THAT DETAIL.
6 Q. WHATEVER YOU KNEW, YOU DID UNDERSTAND THIS, DID YOU NOT,
7 THAT THE EXAMINER OR HEARST CORPORATION WAS GOING TO GET PAID
8 FOR NOT PRODUCING A PAPER?
9 A. NO ONE EVER TOLD ME THE DETAILS OF A PLAN, A DISCUSSION OR
10 WHATEVER MAY HAVE BEEN TAKING PLACE.
11 Q. ALL RIGHT.
12 MR. ALIOTO: IF I MAY GO BACK TO THE EASEL, YOUR
13 HONOR.
14 Q. THEN THE JOA THAT WE WERE TALKING ABOUT, IF, FOR EXAMPLE,
15 THE JOA CONTINUED AT LEAST UNTIL 2005, IF AT ANY TIME THE
16 HEARST CORPORATION WANTED TO SELL ITS PORTION UNDER THE JOA, IF
17 SOMEONE WANTED TO BUY IT, THEY'D HAVE TO PAY HEARST MONEY;
18 WOULDN'T THEY?
19 A. IF IT WAS FOR SALE FOR A PRICE, I GUESS, YES, THEY'D HAVE
20 TO.
21 Q. THEY WOULDN'T BE GIVING IT AWAY OR HAVE ANY NEGATIVE
22 PRICE; WOULD THEY?
23 A. THAT'S COMPLETELY UP TO THEM. I WOULD NOT KNOW THAT.
24 Q. YOU KNOW -- WE JUST WENT OVER THEIR CASH FLOW AND IT'S
25 SHOWING PROFITS OF $20 MILLION. WERE YOU HERE WHEN
1468
1 MS. GREENTHAL TESTIFIED, THE LADY FROM THE DLJ?
2 A. NO. I READ SOME OF HER TRANSCRIPT.
3 Q. DID YOU READ THE PART WHERE SHE VALUED THAT CASH STREAM UP
4 TO 2005 OF AT LEAST $90 MILLION?
5 A. NO, I DIDN'T SEE THAT.
6 Q. WELL, IF THE EXAMINER REMAINED IN THE JOA AND HAD THAT
7 KIND OF CASH STREAM OF THE $20 MILLION THAT WE JUST WENT OVER
8 AND EVERYTHING, DO YOU THINK THAT THE EXAMINER WOULD GIVE IT
9 AWAY? THEY'D MAKE SOMEBODY PAY FOR THE MONEY THAT THEY'RE
10 GOING TO BE MAKING IN THE FIVE YEARS; WOULDN'T THEY? YOU KNOW
11 THAT; DON'T YOU?
12 A. IN THE CONTEXT OF THAT QUESTION, YEAH, IT CAN HAVE NO
13 OTHER ANSWER.
14 Q. YEAH. OF COURSE, IT CAN HAVE NO OTHER ANSWER.
15 WHEN WE WERE -- YOU REMEMBER I TOOK YOUR DEPOSITION
16 IN THIS CASE; CORRECT?
17 A. YES.
18 Q. NOW, ONE OF THE THINGS I UNDERSTOOD -- AGAIN, I HAVE TO
19 USE THE EASEL, YOUR HONOR -- ONE OF THE THINGS I UNDERSTOOD
20 WAS WHEN YOU'RE DOING THESE ADS, THE ADS ACCOUNT FOR HOW MUCH
21 OF THE REVENUE ABOUT?
22 A. 80 PERCENT.
23 Q. OKAY. AND THEN THE -- ALL RIGHT. I'LL PUT UP HERE
24 80 PERCENT.
25 AND THEN THE CIRCULATION WOULD BE MAYBE NOT
1469
1 20 PERCENT, 19 BECAUSE THERE'S OTHER ONES?
2 A. YEAH.
3 Q. ABOUT 20 PERCENT ANYWAY. WE'LL USE ROUND NUMBERS.
4 A. YES.
5 Q. OKAY. OF THIS 80 PERCENT OF ADS AND, FOR EXAMPLE, THE
6 REVENUE -- THE LAST REVENUE WAS HOW MUCH?
7 A. LAST YEAR'S?
8 Q. YES.
9 A. TOTAL REVENUE WAS 445.
10 Q. 445, OKAY. SO I'LL PUT 445. THAT WOULD BE FOR
11 CIRCULATION, THAT WOULD BE --
12 A. 350 ADVERTISING.
13 Q. 350 MILLION?
14 A. YES. 95 MILLION CIRCULATION.
15 Q. ALL RIGHT, I'LL PUT 95 CIRCULATION.
16 OKAY. NOW, OUT OF THIS 350 MILLION, THIS
17 ADVERTISING IS ALL COMBINED; ISN'T IT?
18 A. WE SELL OUR ADVERTISING IN COMBINATION, YES.
19 Q. MOST OF IT. 99 PERCENT OF IT?
20 A. 99 PERCENT OF IT.
21 Q. OKAY. AND YOU HAVE CONTRACTS, YOU JUST TALKED ABOUT THOSE
22 CONTRACTS WITH ALL THESE OTHER FOLKS, THESE ADVERTISERS, AND
23 THE CONTRACTS INCLUDE BOTH PAPERS; CORRECT?
24 A. IT'S A COMBO RATE.
25 Q. OKAY. SO THIS $350 MILLION, IS IT NOT CORRECT, BECAUSE
1470
1 IT'S ALL IN COMBINATION, ISN'T IT CORRECT THAT YOU CAN'T SAY
2 HOW MUCH OF THIS 350 MILLION IS THE CHRONICLE AND HOW MUCH OF
3 THIS 350 MILLION IS THE EXAMINER?
4 A. WE DON'T SELL IT THAT WAY. KNOWING IS DIFFERENT THAN
5 BEING ABLE TO ESTIMATE.
6 Q. ESTIMATES ARE DIFFERENT; RIGHT?
7 A. DIFFERENT THAN WHAT?
8 Q. YOU HEARD ABOUT THESE EXPERTS; DIDN'T YOU?
9 A. YES.
10 Q. THAT WERE BROUGHT IN BY MR. REILLY?
11 A. YES.
12 Q. AND THEY MADE CERTAIN ESTIMATES OF THE EXAMINER'S STANDING
13 ALONE. DID YOU HEAR ABOUT THAT?
14 A. YES.
15 Q. OKAY. AND THEY WERE MAKING ESTIMATES USING THE FIGURES AS
16 BEST THEY COULD TO COME UP WITH WHAT THEY THOUGHT MAY OR MAY
17 NOT BE THE SITUATION, BUT YOU UNDERSTOOD THEY WERE ESTIMATES;
18 RIGHT?
19 A. YES.
20 Q. NOBODY HAS PERSONAL KNOWLEDGE OF HOW MUCH OF THIS
21 350 MILLION IS THE EXAMINER; DO THEY?
22 A. WE DO NOT SELL IT THAT WAY NOR DO WE BILL IT THAT WAY.
23 Q. AND NOR COULD YOU FIGURE IT OUT THAT WAY?
24 A. I CAN ESTIMATE IT FIGURE IT OUT.
25 Q. I DIDN'T ASK YOU IF YOU COULD ESTIMATE IT. I SAID NOBODY
1471
1 HAS PERSONAL KNOWLEDGE OF HOW MUCH IT IS; DO THEY?
2 A. IT'S A COMBINED FIGURE.
3 Q. CORRECT. SO NO ONE HAS KNOWLEDGE, PERSONAL KNOWLEDGE, OF
4 WHAT IT IS; DO THEY?
5 A. NOT SPECIFICALLY, NO.
6 Q. CORRECT. AND IF SOMEONE FILED AN AFFIDAVIT IN THIS CASE,
7 LIKE MR. ASHER, AND SAID HE HAD PERSONAL KNOWLEDGE OF HOW MUCH
8 REVENUE WAS DONATED BY THE EXAMINER, HE WOULD BE INCORRECT;
9 WOULDN'T HE?
10 A. MR. ASHER IS CERTAINLY CAPABLE --
11 Q. WOULDN'T HE?
12 A. -- OF ESTIMATING ANY NUMBER OF WAYS WHAT THAT BREAKDOWN
13 MIGHT BE. I DON'T KNOW WHAT HE TESTIFIED TO.
14 THE COURT: COUNSEL IS ENTITLED TO AN ANSWER TO HIS
15 QUESTION, NOT A QUESTION THAT YOU WOULD LIKE TO HAVE POSED TO
16 YOU.
17 BY MR. ALIOTO:
18 Q. I'M GOING TO SHOW YOU HIS AFFIDAVIT.
19 A. WOULD YOU REPEAT THE QUESTION? I'M SORRY.
20 Q. I'M GOING TO SHOW YOU HIS AFFIDAVIT.
21 IF I MAY APPROACH THE WITNESS, YOUR HONOR.
22 THE COURT: YOU MAY.
23 BY MR. ALIOTO:
24 Q. THIS IS EXHIBIT 51. THIS IS THE DECLARATION OF MR. JAMES
25 ASHER.
1472
1 A. (WITNESS EXAMINES DOCUMENT.)
2 Q. I DIRECT YOUR ATTENTION TO PAGE 1, LINE 8.
3 A. LINE 8?
4 Q. LINE 8 WHERE IT SAYS:
5 "IF CALLED AS A WITNESS, I COULD AND WOULD
6 TESTIFY TO THE MATTERS SET FORTH IN THIS
7 DECLARATION OF MY OWN PERSONAL KNOWLEDGE."
8 DO YOU SEE THAT?
9 A. I SEE THAT.
10 Q. I DIRECT YOUR ATTENTION TO PAGE 1, LINE 24, HE STATES AS
11 FOLLOWS: QUOTE, "THE COST TO PUBLISH THE EXAMINER CURRENTLY
12 EXCEED THE REVENUES IT CONTRIBUTES TO THE JOA BY MILLIONS OF
13 DOLLARS ANNUALLY."
14 DO YOU SEE THAT?
15 A. YES.
16 Q. THERE IS NO WAY ANYONE OF THEIR OWN PERSONAL KNOWLEDGE
17 WOULD KNOW THE REVENUES THE EXAMINER CONTRIBUTES TO THE JOA;
18 WOULD THEY? THERE'S NO WAY.
19 A. HE MAY HAVE LOOKED AT, FOR EXAMPLE, THAT 1995 A.M. ONLY
20 ANALYSIS THAT I COMPLETED OR ONE IN '97 OR ONE IN '99.
21 Q. I DIDN'T ASK YOU WHAT HE MAY HAVE LOOKED AT. I DIDN'T ASK
22 YOU TO SPECULATE ABOUT ANYTHING. I'M ASKING YOU STRAIGHT,
23 POINT BLANK, IT IS CORRECT, IS IT NOT, THAT THERE IS NO WAY
24 THAT ANYONE WOULD HAVE PERSONAL KNOWLEDGE OF THE REVENUES THAT
25 THE EXAMINER CONTRIBUTES TO THE JOA; ISN'T THAT TRUE?
1473
1 A. TO THE EXTENT WE DO NOT SELL IT NOR BILL IT, THERE IS NO
2 MEASUREMENT SPECIFICALLY OF THAT DIFFERENCE.
3 Q. YOU CAN'T DO IT; CAN YOU?
4 A. REPORT IT OR ESTIMATE IT?
5 Q. I'M GOING TO ASK YOU, AS SOON AS I FIND THE PAPER HERE, IT
6 IS CORRECT, IS IT NOT, THAT YOU ARE NOT ABLE TO SAY HOW MUCH OF
7 THE REVENUE IS ATTRIBUTABLE TO ONE PAPER AS OPPOSED TO ANOTHER?
8 THAT'S TRUE; ISN'T IT?
9 A. NOT SPECIFICALLY, YES, THAT'S TRUE.
10 Q. ARE YOU ABLE TO SAY HOW MUCH OF THE REVENUE IS
11 ATTRIBUTABLE TO ONE PAPER AS OPPOSED TO ANOTHER?
12 A. I HAVE A PRETTY GOOD IDEA, BUT IT'S NOT MEASURED THAT WAY,
13 NO.
14 Q. OKAY.
15 MR. ALIOTO: IF I MAY APPROACH THE WITNESS, YOUR
16 HONOR.
17 THE COURT: YOU MAY.
18 BY MR. ALIOTO:
19 Q. YOUR DEPOSITION WAS TAKEN ON FRIDAY, APRIL THE 28TH, IN
20 THIS PROCEEDINGS; WAS IT NOT?
21 A. YES, IT WAS.
22 Q. I'M GOING TO DIRECT YOUR ATTENTION TO PAGE 26 OF YOUR
23 DEPOSITION. I WILL ASK YOU -- I'M GOING TO SHOW ON THE SCREEN
24 HERE A QUESTION THAT WAS ASKED OF YOU AND AN ANSWER THAT YOU
25 GAVE, AND I'LL ASK YOU AFTER WE SHOW IT WHETHER OR NOT YOU WERE
1474
1 ASKED THIS QUESTION AND YOU GAVE THIS ANSWER.
2 THE COURT: DO WE HAVE THE ORIGINAL?
3 MR. ALIOTO: PARDON ME?
4 THE COURT: DO WE HAVE THE ORIGINAL TRANSCRIPT?
5 MR. ALIOTO: WE DO. AND I BELIEVE YOUR HONOR HAS, I
6 BELIEVE, THE ORIGINAL. WE THOUGHT IT WAS WITH YOUR HONOR.
7 THE COURT: AH, PERHAPS IT IS.
8 MR. ALIOTO: IT IS PAGE 26, YOUR HONOR.
9 (PAUSE IN PROCEEDINGS.)
10 THE COURT: YOU'RE ABSOLUTELY CORRECT.
11 MR. ALIOTO: DID YOU HAVE IT, YOUR HONOR?
12 THE COURT: I DO. THANK YOU.
13 MR. ALIOTO: VERY GOOD, YOUR HONOR. THEN WE WOULD
14 RESPECTFULLY DIRECT THE COURT'S ATTENTION TO THE PORTION THAT
15 WE ARE GOING TO BE READING FROM, WHICH IS PAGE 26, BEGINNING
16 LINE 2. CAN YOU DO THAT?
17 (VIDEOTAPE PLAYED AS FOLLOWS:)
18 "Q. ARE YOU ABLE TO SAY HOW MUCH OF THE
19 REVENUE IS ATTRIBUTABLE TO ONE PAPER AS OPPOSED
20 TO ANOTHER?
21 "A. NO.
22 "Q. ARE YOU ABLE --"
23 MR. ALIOTO: STOP IT. STOP IT.
24 Q. WERE YOU ASKED THAT QUESTION, AND DID YOU GIVE THAT
25 ANSWER?
1475
1 A. YES.
2 Q. WAS IT TRUE?
3 A. YES.
4 Q. YOU WERE UNDER OATH AT THE TIME; CORRECT?
5 A. CORRECT.
6 Q. NOW I'M GOING TO ASK YOU: ARE YOU ABLE TO SAY HOW MUCH IS
7 ATTRIBUTABLE TO THE EXPENSES, HOW MUCH OF THE EXPENSES ARE
8 ATTRIBUTABLE, HOW MUCH OF THE EXPENSES IS ATTRIBUTABLE TO ONE
9 PAPER AS DISTINGUISHED FROM ANOTHER? ARE YOU ABLE TO DO THAT?
10 A. IT'S DIFFICULT TO DO.
11 Q. DID YOU READ THE ANSWER DOWN THERE?
12 A. THAT'S WHAT I SAID.
13 Q. RIGHT, OKAY, GOOD.
14 (LAUGHTER)
15 MR. ALIOTO: IF I MAY APPROACH THE WITNESS, YOUR
16 HONOR.
17 BY MR. ALIOTO:
18 Q. DID YOU EVER -- DID YOU EVER ADVISE MR. IRISH -- MR. IRISH
19 IS IN CHARGE OF THE NEWSPAPERS FOR THE HEARST CORPORATION; WAS
20 HE NOT?
21 A. YES, HE IS.
22 Q. STILL IS, OKAY. AND PRESENTLY IS HE THE PUBLISHER OF THE
23 EXAMINER TODAY?
24 A. NO.
25 Q. HE'S NOT. WHO IS THE PUBLISHER?
1476
1 A. (PAUSE) THE MASTHEAD SAYS TIMOTHY O. WHITE.
2 Q. I DIDN'T ASK YOU THAT. WHO'S THE PUBLISHER?
3 A. TIM WHITE.
4 Q. DID YOU EVER ADVISE MR. IRISH IN SUM OR SUBSTANCE THAT YOU
5 HAD A CONVERSATION WITH MR. RICHARD ROSENBERG, FORMER CHAIRMAN
6 OF THE BOARD OF BANK OF AMERICA, WHO WAS IN THE CHRONICLE BOARD
7 MEETING, ABOUT THE DISCUSSION ON THE MEMBER -- THE BOARD
8 MEMBERS OF THE CHRONICLE DECISION TO SELL THE PAPER?
9 A. NO.
10 Q. I'LL SHOW YOU EXHIBIT 88.
11 MR. ALIOTO: MAY I APPROACH THE WITNESS, YOUR HONOR?
12 THE COURT: YES, YOU MAY.
13 BY MR. ALIOTO:
14 Q. LET ME SHOW YOU WHAT IS EXHIBIT 88 IN EVIDENCE. EXHIBIT
15 88 IS AN E-MAIL FROM MR. FRANK BENNACK DATED JUNE 22, '99,
16 DIRECTED TO VARIOUS INDIVIDUALS ENCLOSING AN E-MAIL FROM
17 MR. GEORGE IRISH. I ASK YOU IF YOU'VE EVER SEEN THAT DOCUMENT
18 BEFORE.
19 A. (WITNESS EXAMINES DOCUMENT.) NO.
20 Q. I WANT TO DIRECT YOUR ATTENTION TO THE FIRST SENTENCE OF
21 THE PARAGRAPH OF THE FIRST E-MAIL, WHICH IS IN THE MIDDLE OF
22 THE PAGE BEGINNING DOWN HERE (INDICATING), "TODAY," DO YOU SEE
23 THAT?
24 A. YES, I DO.
25 Q. QUOTE:
1477
1 "TODAY STEVE FALK RELAYED A CONVERSATION HE
2 HAD WITH DICK ROSENBERG WHO WAS IN THE CHRONICLE
3 BOARD MEETING ABOUT THE DISCUSSION ON THE
4 DECISION TO SELL. ROSENBERG TOLD STEVE THAT
5 THEY DISCUSSED THE HEARST/JOA SITUATION AT
6 LENGTH AND ENDED UP WITH THE EXPECTATION THAT
7 HEARST WOULD MAKE THEIR BEST OFFER VERY QUICKLY,
8 INSTEAD OF WAITING UNTIL ALL THE OTHER OFFERS
9 WERE IN, AND THEN USING THE JOA, QUOTE, FIRST
10 RIGHT OF REFUSAL, END QUOTE, LANGUAGE AT THE
11 END. DICK TOLD STEVE THAT THERE IS STILL A
12 GREAT DEAL OF LONG-STANDING DISLIKE OF HEARST
13 AMONG SOME OF THE SHAREHOLDERS, AND A STRONG
14 OFFER UP FRONT COULD LEAD TO THEIR ACCEPTANCE
15 WITHOUT THE LONGER PROCESS.
16 "STEVE TOLD ME THAT ROSENBERG OPINED THAT IF
17 WE WAITED UNTIL THE END OF THE PROCESS, THEY MAY
18 FIND THEMSELVES FLUSH WITH CASH AND DECIDE TO
19 KEEP THE CHRONICLE."
20 DO YOU SEE THAT?
21 A. YES, I DO.
22 Q. FIRST, YOU KNOW WHO MR. RICHARD ROSENBERG IS; DO YOU NOT?
23 A. YES, I DO.
24 Q. AND HE WAS THE FORMER CHAIRMAN OF THE BANK OF AMERICA;
25 CORRECT?
1478
1 A. I BELIEVE SO, YES.
2 Q. YOU UNDERSTOOD THAT HE ALSO WAS A MEMBER OF THE BOARD OF
3 DIRECTORS OF THE CHRONICLE?
4 A. YES.
5 Q. DID MR. ROSENBERG MAKE ANY OF THE STATEMENTS THAT ARE
6 ATTRIBUTED HERE TO HIM, DID HE MAKE ANY OF THOSE STATEMENTS TO
7 YOU?
8 A. NO.
9 Q. DID YOU MAKE -- DID YOU STATE ANY OF THESE STATEMENTS THAT
10 ARE CONTAINED IN THIS DOCUMENT TO MR. IRISH?
11 A. WE HAD A --
12 Q. DID YOU MAKE ANY OF THESE STATEMENTS TO MR. IRISH ABOUT
13 MR. ROSENBERG?
14 A. NOT PER SE. IT NEEDS A LITTLE MORE EXPLANATION.
15 Q. DID YOU TELL MR. IRISH THAT ANYBODY FROM THE CHRONICLE
16 BOARD OF DIRECTORS MADE ANY SUCH STATEMENT TO YOU?
17 A. YES.
18 Q. WHICH MEMBER OF THE CHRONICLE BOARD OF DIRECTORS MADE THE
19 STATEMENT TO YOU?
20 A. I TOLD MR. IRISH --
21 Q. WHO TOLD YOU FROM THE BOARD OF DIRECTORS OF THE CHRONICLE?
22 WHO WAS IT?
23 MR. HALLING: OBJECTION TO FOUNDATION. I DON'T
24 UNDERSTAND WHAT THE ANSWER IS GOING TO REFER TO. WHO SAID
25 WHAT?
1479
1 THE COURT: THE QUESTION WAS: DID YOU TELL
2 MR. IRISH THAT ANYBODY FROM THE CHRONICLE BOARD OF DIRECTORS
3 MADE ANY SUCH STATEMENT TO YOU." THE ANSWER WAS YES. THE
4 FOLLOWUP QUESTION IS WHO.
5 MR. ALIOTO: WHO.
6 THE COURT: IT'S A FAIR QUESTION.
7 THE WITNESS: ALAN NICHOLS.
8 BY MR. ALIOTO:
9 Q. ARE YOU NERVOUS ABOUT THAT?
10 A. AM I NERVOUS ABOUT ALAN NICHOLS?
11 Q. NO, ABOUT HAVING TO SAY THAT IT WAS ALAN NICHOLS?
12 A. NO.
13 Q. IT WAS ALAN NICHOLS?
14 A. ALAN NICHOLS AT THE TIME WAS THE CHIEF FINANCIAL OFFICER
15 OF THE CHRONICLE PUBLISHING COMPANY.
16 Q. AND DID ALAN NICHOLS TELL YOU -- DID ALAN NICHOLS MENTION
17 MR. ROSENBERG TO YOU?
18 A. IN A CONVERSATION ROSENBERG'S NAME CAME UP, YES.
19 Q. AND MR. NICHOLS WAS ON THE BOARD OF DIRECTORS OF THE
20 CHRONICLE; IS THAT RIGHT?
21 A. I BELIEVE HE WAS.
22 Q. AND HE WOULD BE SITTING ON THE BOARD OF DIRECTORS OF THE
23 CHRONICLE WITH MR. ROSENBERG?
24 A. I ASSUME SO, YES.
25 Q. AND MR. NICHOLS TOLD YOU THAT MR. ROSENBERG -- THAT
1480
1 MR. ROSENBERG FELT THAT IF HEARST DIDN'T ACT NOW, THAT THE
2 MEMBERS OF THE BOARD -- THE MEMBERS OF THE CHRONICLE FAMILY
3 MIGHT FIND THEMSELVES FLUSH WITH CASH AND DECIDE NOT TO -- AND
4 DECIDE TO KEEP THE CHRONICLE?
5 A. I DON'T REMEMBER, IN ALL HONESTY, THE SPECIFICS OF THE
6 CONVERSATION. I CAN TELL YOU GENERALLY WHAT WE DISCUSSED.
7 Q. "WE" MEANING YOU AND MR. IRISH?
8 A. NO, MEANING ME AND MR. NICHOLS.
9 Q. DID MR. NICHOLS TELL YOU IN SUM OR SUBSTANCE THAT THE
10 HEARST CORPORATION SHOULD ACT QUICKLY BECAUSE THE CHRONICLE
11 FAMILY MEMBERS MIGHT FIND THEMSELVES FLUSH WITH CASH AND DECIDE
12 TO KEEP THE CHRONICLE? DID HE SAY THAT TO YOU IN SUM OR
13 SUBSTANCE?
14 A. THERE WAS THAT INDICATION, YES.
15 Q. WELL, YOU SAY "INDICATION." I MEAN, DID HE SAY LIKE FLUSH
16 WITH CASH, DID HE SAY THAT?
17 A. I -- I HAVE TO SAY ON THE RECORD I DON'T HAVE A GOOD
18 RECOLLECTION OF THE CONVERSATION. IT WAS A SOMEWHAT CASUAL
19 HALLWAY CONVERSATION, THOUGH IT WAS CLEAR TO ME THE MESSAGE.
20 THE MESSAGE WAS WE HOPE, ROSENBERG AND OTHER BOARD MEMBERS ARE
21 HOPING HEARST STEPS UP TO THE PLATE IN AN AGGRESSIVE WAY
22 QUICKLY.
23 Q. QUICKLY BEFORE THE CHRONICLE FAMILY MEMBERS GET FLUSH WITH
24 CASH AND KEEP THE CHRONICLE?
25 A. I DON'T --
1481
1 Q. IS THAT RIGHT?
2 A. I DON'T REMEMBER THE SPECIFICS OF ALL OF THAT DETAIL. I
3 REMEMBER -- I REMEMBER THE CONVERSATION. I REMEMBER THINKING
4 NICHOLS IS A PRETTY SAVVY CFO, HE'S TRYING TO GET THE HIGHEST
5 PRICE HE CAN FOR THE PAPER THAT HE WORKS FOR AND HE'S DROPPING
6 A HINT MY WAY AS TO THAT EXPECTATION.
7 Q. AND THE HINT THAT HE DROPPED WAS ON BEHALF OF HIMSELF AND
8 MR. ROSENBERG?
9 A. HE MENTIONED ROSENBERG'S NAME IN THE CONVERSATION IN THE
10 CONTEXT OF ROSENBERG AND OTHERS ON THE BOARD.
11 Q. NOW, WHEN THEY SAID -- WHEN MR. NICHOLS SAID QUICKLY, THE
12 REASON HE GAVE FOR ACTING QUICKLY WAS THAT THEY MIGHT -- YOU
13 MIGHT LOSE THE CHRONICLE BECAUSE THE FAMILY MEMBERS MIGHT BE --
14 GET FLUSH WITH CASH WITH THESE OTHER ASSETS?
15 A. I DON'T REMEMBER HIM ADDING THAT COMMENT. MY TAKE-AWAY
16 WAS FAST AS OPPOSED TO A LONG, DRAWN-OUT, LOW-BALL BID PROCESS.
17 Q. BUT THERE WAS A REASON GIVEN FOR ASKING THEM -- FOR ASKING
18 YOU TO MOVE QUICKLY OR FOR YOU TO -- STRIKE THAT.
19 THERE WAS A REASON GIVEN, WAS THERE NOT, WHEN
20 MR. NICHOLS WAS TALKING TO YOU, TO SUGGEST TO HEARST THAT THEY
21 ACT QUICKLY?
22 A. NOT THAT I RECALL.
23 Q. DID YOU SAY IN SUM OR SUBSTANCE, DID YOU SAY IN SUM OR
24 SUBSTANCE THAT THE REASON TO ACT QUICKLY WAS BECAUSE THE FAMILY
25 MEMBERS OF THE CHRONICLE MIGHT GET CASH FROM THESE OTHER DEALS
1482
1 LIKE THE KRON OR SOMETHING AND THEN DECIDE NOT TO SELL THE
2 CHRONICLE, ANYTHING LIKE THAT AT ALL?
3 A. I DON'T REMEMBER HIM MENTIONING THOSE WORDS PER SE, NO. I
4 JUST DON'T REMEMBER.
5 Q. REGARDLESS OF THE WORDS PER SE, WAS THAT CONVEYED TO YOU
6 AS THE REASON TO ACT QUICKLY?
7 A. THE CONVEYANCE WAS, GENERALLY SPEAKING, ROSENBERG AND
8 OTHERS ON THE BOARD ARE HOPING THAT THERE IS A SUBSTANTIAL
9 OFFER.
10 Q. QUICKLY?
11 A. I THINK HE SAID QUICKLY, AS --
12 Q. BECAUSE --
13 A. AS OPPOSED TO -- THE IMPLICATION WAS, AS OPPOSED TO A
14 LOW-BALL OFFER AND DRAGGING OUT THE PROCESS.
15 Q. SO THERE WAS NO BECAUSE, QUICKLY BECAUSE, THERE WAS NONE
16 OF THAT?
17 A. NOT THAT I REMEMBER.
18 Q. GOING BACK TO THIS DOCUMENT, WHICH IS EXHIBIT NUMBER 88,
19 IT SAYS, QUOTE:
20 "STEVE TOLD ME THAT ROSENBERG OPINED THAT IF
21 WE WAITED UNTIL THE END OF THE PROCESS, THEY MAY
22 FIND THEMSELVES FLUSH WITH CASH AND DECIDE TO
23 KEEP THE CHRONICLE."
24 THERE'S NO QUESTION IN YOUR MIND THAT YOU DID NOT
25 SAY THAT TO MR. IRISH; CORRECT?
1483
1 A. THE ONLY THING I KNOW FOR SURE IS I DON'T REMEMBER THE
2 SPECIFICS. I REMEMBER WHAT I THOUGHT THE INTENT OF NICHOLS
3 STOPPING IN MY OFFICE WAS, AND GEORGE IRISH HAPPENED TO CALL ME
4 THE DAY AFTER, AND I SAID, "GEORGE, FOR WHAT THIS IS WORTH,"
5 AND I RELAYED THAT QUICK CONVERSATION WITHOUT, I MIGHT ADD, AT
6 THE TIME TELLING HIM THAT IT WAS FROM NICHOLS.
7 Q. WELL, YOU MUST HAVE TOLD HIM IT WAS FROM SOMEBODY; DIDN'T
8 YOU?
9 A. NO, I DID NOT TELL HIM WHO IT WAS FROM.
10 Q. YOU THINK MR. IRISH, WHEN HE MADE REFERENCE TO
11 MR. ROSENBERG, THAT HE MADE THIS UP?
12 A. NO. I MENTIONED ROSENBERG'S NAME, THERE'S NO DOUBT ABOUT
13 THAT.
14 Q. DID YOU SAY ROSENBERG WAS THE SOURCE?
15 A. NO.
16 Q. IF YOU DIDN'T --
17 A. NO.
18 Q. IF YOU DIDN'T MENTION NICHOLS, THEN THE ONLY ONE YOU
19 MENTIONED WAS ROSENBERG, THEN YOU UNDERSTOOD THE ONLY THING
20 THAT MR. IRISH COULD UNDERSTAND WAS THAT ROSENBERG WAS THE
21 SOURCE; RIGHT?
22 A. ROSENBERG'S NAME WAS MENTIONED, CERTAINLY NOT AS THE
23 SOURCE.
24 Q. BUT YOU JUST SAID THAT YOU DIDN'T MENTION NICHOLS;
25 CORRECT?
1484
1 A. I DON'T BELIEVE I DID.
2 Q. SO WHEN YOU MENTIONED ROSENBERG, YOU UNDERSTOOD THAT IT
3 WAS REASONABLE FOR MR. IRISH TO UNDERSTAND THAT THIS WAS COMING
4 FROM ROSENBERG; RIGHT?
5 A. I DON'T THINK THAT'S A LOGICAL CONCLUSION, NO.
6 Q. IN ANY EVENT, YOU ARE CLEAR, IT IS YOUR SWORN TESTIMONY
7 THAT THERE'S NO QUESTION YOU DID NOT, YOU DID NOT TELL
8 MR. IRISH THAT ROSENBERG OPINED THAT IF WE WAITED UNTIL THE END
9 OF THE PROCESS, THEY MAY FIND THEMSELVES FLUSH WITH CASH AND
10 DECIDE TO KEEP THE CHRONICLE?
11 A. I DON'T REMEMBER SAYING THAT, NO.
12 Q. IN OTHER WORDS, YOU'RE NOT SURE? WHEN YOU SAY YOU DON'T
13 REMEMBER --
14 A. YOU'RE RIGHT, I'M NOT SURE.
15 Q. SO YOU CAN'T DENY IT? YOU ARE NOT IN A -- YOUR MEMORY IS
16 NOT SUCH THAT YOU CAN DENY IT; IS THAT RIGHT?
17 A. THAT'S RIGHT. IT WAS NOT A MAJOR EVENT IN MY
18 RECOLLECTION, AND I JUST DON'T REMEMBER THE DETAIL OF WHAT WAS
19 SAID.
20 Q. YOU SAY NOT A MAJOR EVENT. YOU HAVE THE CHIEF FINANCIAL
21 OFFICER GIVING YOU INSIDE INFORMATION ABOUT WHAT'S GOING ON IN
22 THE BOARD OF DIRECTORS MEETING OF THE CHRONICLE, THE COMPETITOR
23 OF THE HEARSTS, WITH REGARD TO THE SALE OF THE CHRONICLE, YOU
24 SAY THAT THAT IS NOT SOMETHING THAT WAS OF GREAT MOMENT TO YOU?
25 A. THAT'S RIGHT. IT WAS NOT QUITE AS SERIOUS AND --
1485
1 Q. AS IT'S SOUNDING?
2 A. -- EARTH MOVING AS YOU JUST RESTATED IT.
3 Q. WELL, YOU UNDERSTOOD; DIDN'T YOU --
4 A. IN A HALLWAY CONVERSATION, IT CAME UP; AND, YES, I THOUGHT
5 IT WAS SIGNIFICANT ENOUGH TO PASS ON.
6 Q. YOU BELIEVED IT TO BE UNETHICAL; DIDN'T YOU?
7 A. NO. IN MY OPINION, NICHOLS WAS DOING HIS JOB.
8 Q. DOING HIS JOB SO THAT -- AND DOING IT BEFORE THE MEMBERS
9 OF THE FAMILY OWNING THE CHRONICLE -- WHEN YOU SAY DOING HIS
10 JOB, YOU MEAN FOR THE CHRONICLE, IS THAT WHAT YOU MEAN?
11 A. AGAIN, I THINK ALAN WAS BEING A VERY SAVVY CFO. HE WAS --
12 I MEAN, HIS MISSION WAS, I BELIEVE, TO GET THE HIGHEST PRICE HE
13 COULD FOR THE CHRONICLE FOR HIS BOARD AND FOR HIS SHAREHOLDERS.
14 AND I THINK HE THOUGHT IF HE DROPPED A LITTLE BIT OF
15 INFORMATION IN THE RIGHT PLACE, THAT WORD MAY JUST GET BACK TO
16 WHERE IT MIGHT DO SOME GOOD.
17 Q. OKAY. AND GETTING THAT WORD BACK TO WHERE IT MAY DO SOME
18 GOOD, YOU UNDERSTOOD THAT WHEN HE GAVE YOU THAT INFORMATION,
19 YOU WERE SUPPOSED TO PASS IT ON TO MR. IRISH?
20 A. THAT WAS NEVER STATED NOR IMPLIED.
21 Q. YOU JUST SAID TO DO SOME GOOD TO GET IT -- JUST WAIT ONE
22 SECOND. EXCUSE ME. MAY I JUST READ THE ANSWER, YOUR HONOR?
23 THE COURT: YOU MAY.
24 (PAUSE IN PROCEEDINGS.)
25 BY MR. ALIOTO:
1486
1 Q. YOU SAID, QUOTE, AND I THINK, THIS IS FROM THE UNOFFICIAL
2 RECORD, BUT AT LINE 10, YOU SAY, QUOTE, AND I THINK HE THOUGHT
3 IF HE DROPPED A LITTLE BIT OF INFORMATION IN THE RIGHT PLACE,
4 YOU WERE THE RIGHT PLACE; RIGHT?
5 A. TURNED OUT TO BE.
6 Q. IN THE RIGHT PLACE, THAT WORD MAY JUST GET BACK TO WHERE
7 IT MIGHT DO SOME GOOD, AND WHERE MEANS THE EXECUTIVE OFFICES IN
8 NEW YORK OF HEARST; RIGHT?
9 A. YES, UH-HUH.
10 Q. YOU UNDERSTOOD, DID YOU NOT, THAT THE EXAMINER WAS
11 INTERESTED IN MOVING THE PAPER TO THE MORNING?
12 A. I HAD HEARD ABOUT A LETTER THAT DISCUSSED THAT TOPIC, YES.
13 Q. OKAY. LET ME SHOW YOU WHAT IS IN EVIDENCE AS EXHIBIT 72.
14 MR. ALIOTO: IF I MAY APPROACH THE WITNESS, YOUR
15 HONOR.
16 THE COURT: YOU MAY.
17 BY MR. ALIOTO:
18 Q. I SHOW YOU WHAT IS IN EVIDENCE AS EXHIBIT NUMBER 72.
19 EXHIBIT NUMBER 72 IS A DOCUMENT DATED APRIL 15, 1999. IT IS
20 DIRECTED TO MR. SIAS FROM MR. WHITE. IT SHOWS VARIOUS BLIND
21 COPIES TO OTHER PERSONS.
22 DID YOU EVER GET A COPY OF THAT LETTER ON OR ABOUT
23 THAT DATE?
24 A. I DON'T BELIEVE SO, NO.
25 Q. ARE YOU FAMILIAR WITH IT?
1487
1 A. YES, I AM FAMILIAR WITH IT.
2 Q. I'D LIKE TO DIRECT YOUR ATTENTION TO PAGE 2. NOW, YOU
3 WERE -- WHEN YOU SAY YOU'RE FAMILIAR WITH IT, HAVE YOU READ IT
4 BEFORE?
5 A. I CAN'T REMEMBER EXACTLY WHEN I HAVE READ IT. I HAVE READ
6 IT.
7 Q. OKAY. WHENEVER IT WAS THAT YOU READ IT, YOU UNDERSTOOD
8 THAT ONE OF THE CHARGES THAT MR. WHITE WAS MAKING WAS THAT THE
9 EFFORT BY THE CHRONICLE TO TRY TO IMPEDE THEIR ABILITY TO
10 POSITION THEMSELVES FOR COMPETITION AFTER 2005 VIOLATED THE
11 ANTITRUST LAWS?
12 A. HE SAID SOMETHING TO THAT EXTENT IN THIS LETTER, YES.
13 Q. OKAY. SO THAT YOU UNDERSTOOD THAT WHAT WAS GOING ON HERE
14 WAS THAT THE HEARST CORPORATION THIS EARLY WAS BEGINNING TO PUT
15 ITSELF IN A POSITION TO BE ABLE TO COMPETE HEAD TO HEAD WITH
16 THE CHRONICLE AFTER THE JOA IN 2005; CORRECT?
17 A. WELL, I KNEW MORE IN A LARGER CONTEXT THAN THAT. I KNEW
18 THAT THERE HAD RECENTLY BEEN AN ARM-WRESTLING CONTEST OVER A
19 CIRCULATION JOINT PROMOTION AND SOME LETTERS WENT BACK AND
20 FORTH IN THAT REGARD; AND IT WAS, YOU KNOW, CAN I DO THE OTHER
21 GUY ONE UP THAN WHAT HE'S DONE TO ME. AND THERE WAS AN
22 EXCHANGE OF LETTERS ON VARIOUS TOPICS, AND CERTAINLY THIS WAS
23 ONE.
24 Q. WELL, WHAT YOU'RE TALKING ABOUT IS, IS THAT IMMEDIATELY
25 BEFORE THIS, APPROXIMATELY ONE MONTH BEFORE, YOU HAD A JOINT --
1488
1 IN EFFECT, YOU HAD A JOINT -- WHAT ARE YOU LOOKING FOR, WATER?
2 A. NO, I HAVE WATER.
3 Q. YOU HAD A JOINT PROGRAM THAT YOU INSTITUTED IN WHICH YOU
4 WOULD GO TO SUBSCRIBERS OF THE CHRONICLE AND OFFER THEM A FREE
5 EXAMINER, AND THEN YOU WOULD GO TO SUBSCRIBERS OF THE EXAMINER
6 AND OFFER THEM A FREE CHRONICLE?
7 A. YES. ONE OF MANY CIRCULATION PROMOTIONS.
8 Q. AND AS FAR AS YOU WERE CONCERNED, THIS WAS A PROGRAM THAT
9 WAS AGREED TO BY THE HEARST CORPORATION, THE PERSON BEFORE MR.
10 WHITE, MR. GUITTAR, AND BY MR. SIAS?
11 A. IT WAS RECOMMENDED BY THE AGENCY AND JOINTLY APPROVED.
12 Q. BY THOSE TWO INDIVIDUALS?
13 A. YES.
14 Q. AND IT HAD BEEN GOING ON FOR ABOUT TWO YEARS?
15 A. YES.
16 Q. AND IT HAD RESULTED IN AN INCREASE OF CIRCULATION FOR THE
17 EXAMINER AND THE CHRONICLE BOTH?
18 A. YES.
19 Q. AND THE CHRONICLE DIDN'T WANT ITS PAPER TO BE USED AS A
20 SPRINGBOARD, SO TO SPEAK, FOR A FREE EXAMINER, THAT WAS THE
21 BASIC PROBLEM; CORRECT?
22 A. NO. THE BASIC PROBLEM WAS JOHN SIAS WOKE UP ONE DAY, AND
23 A NEIGHBOR OF HIS SAID, "I GOT A PHONE CALL LAST NIGHT OFFERING
24 ME A FREE EXAMINER WITH MY CHRONICLE SUBSCRIPTION. HOW COULD
25 YOU ALLOW THAT TO HAPPEN?"
1489
1 Q. AND SO HE INSTRUCTED YOU TO CEASE THE PROGRAM, STOP IT?
2 A. YES, HE HAD AN EMOTIONAL REACTION TO HIS NEIGHBOR'S
3 COMMENT AND CAME IN THAT DAY AND IN A COLORFUL WAY ASKED THAT
4 WE STOP THIS PROGRAM, YES.
5 Q. AND IN THE COURSE OF THAT, HE ADVISED YOU AND REMINDED YOU
6 THAT THE JOA, AMONG OTHER THINGS, GAVE THE CHRONICLE THE
7 EXCLUSIVE RIGHT AND RESPONSIBILITY TO SET NOT ONLY ADVERTISING
8 RATES BUT ALSO CIRCULATION RATES?
9 A. BY THE TIME THE LETTERS AND WRITING --
10 Q. DID HE TELL YOU THAT?
11 A. NO.
12 Q. HE DID NOT?
13 A. NOT THEN, NO.
14 Q. DIDN'T HE TELL YOU THAT IN THE LETTER?
15 A. YES. I WAS STARTING TO SAY BY THE TIME THE LETTERS WERE
16 FLYING BACK AND FORTH AND THE LAWYERS WERE INVOLVED, YES, THERE
17 WAS REFERENCE TO JOA'S AND SECTIONS AND DOCUMENTS AND --
18 Q. SO YOU UNDERSTOOD, THEN --
19 THE COURT: THINGS DO GO DOWNHILL FAST WHEN LAWYERS
20 ARE INVOLVED.
21 THE WITNESS: YEAH, THE MINUTE THAT -- OKAY.
22 BY MR. ALIOTO:
23 Q. OKAY. SO THEN YOU UNDERSTOOD, THEN, YOU SAID THE LAWYERS
24 GOT INVOLVED.
25 A. YES.
1490
1 Q. IS THAT WHAT YOU SAID?
2 A. YES.
3 Q. THE HEARST LAWYERS?
4 A. NOT INITIALLY. AFTER MR. SIAS GOT HIS LAWYER INVOLVED AND
5 SENT OFF THE FIRST SHOT, I'M SURE THE HEARST LAWYERS HELPED
6 SEND OFF THE SECOND SHOT.
7 Q. OKAY. AND IN THAT SECOND SHOT WITH THE LAWYERS INVOLVED,
8 ALL OF A SUDDEN THE ANTITRUST LAWS CAME UP; RIGHT?
9 A. EVERYTHING CAME UP.
10 (LAUGHTER)
11 Q. AND YOU DIDN'T SUSPECT THAT THESE LAWYERS FROM HEARST
12 DIDN'T KNOW WHAT THEY WERE TALKING ABOUT; DID YOU?
13 A. I SUSPECTED THEY WERE GOING TO ARM WRESTLE OVER THIS FOR A
14 WHILE, AS THEY HAVE DONE OVER MANY SITUATIONS OVER 12 YEARS,
15 AND THAT IF I JUST HUNKERED DOWN, IT WOULD GO AWAY, AND WE
16 WOULD CONTINUE TO RUN THE BUSINESS AS WE ALWAYS HAVE IN THE
17 PAST.
18 Q. OKAY. AND, IN FACT, THE PROGRAM THEN CONTINUED ANYWAY; IS
19 THAT RIGHT?
20 A. WE CONTINUED FOLLOWING OUR BUDGET PLAN, OUR SALES AND
21 MARKETING PLAN FOR SOME PERIOD OF TIME.
22 Q. OKAY.
23 A. I --
24 Q. NOW --
25 A. I SENT A LETTER TO BOTH HOPING THAT BOTH WOULD COME TO
1491
1 THEIR SENSES AND LIFE WENT ON.
2 Q. NOW, GOING BACK TO THIS LETTER OF APRIL 12, WHICH IS
3 EXHIBIT 72.
4 A. YES.
5 Q. APRIL -- SORRY, 15TH.
6 A. YES.
7 Q. EXHIBIT 72. NOW, THIS REFERENCE TO THE ANTITRUST
8 VIOLATION WAS BECAUSE OF THIS PROBLEM THAT CAME ABOUT BECAUSE
9 OF THE COMBINATION SALE; CORRECT?
10 A. IN MY OPINION, THIS WAS ALL CONNECTED. IT WAS GETTING --
11 YES.
12 Q. AND THE -- SORRY.
13 AND AT THE TIME THE EXAMINER SAID THAT THIS IMPACTED
14 AT LEAST 16 PERCENT OF THEIR CIRCULATION; CORRECT?
15 A. THE SPECIFIC REFERENCE WAS THAT WITHIN THIS PROGRAM
16 RESIDED -- 16 PERCENT OF THE TOTAL HOME DELIVERY BASE OF THE
17 EXAMINER WERE UNDER THIS PROMOTION.
18 Q. SO IN EFFECT DID AT LEAST 16 PERCENT OF THEIR CIRCULATION
19 HOME DELIVERY; CORRECT?
20 A. YES. YES.
21 Q. NOW, MR. WHITE OF THE HEARST CORPORATION THEN IN THIS
22 LETTER SAYING -- HE STATES, QUOTE -- IF YOU'LL GO DOWN ON PAGE
23 2 AND IF YOU'LL GO TO THE THIRD PARAGRAPH, HE STATES, QUOTE:
24 "WHAT IS CLEAR" -- WELL, LET ME READ THE
25 WHOLE THING. QUOTE:
1492
1 "IN ADDITION, WE ARE FOCUSING ON THE LEGAL
2 QUESTION OF UNFORESEEN CIRCUMSTANCES. WHAT IS
3 CLEAR TODAY WAS NOT CLEAR TO THE DRAFTERS OF THE
4 JOA IN 1964. NO MATTER HOW SUPERIOR THE
5 NEWSPAPER PRODUCT, WE NOW KNOW THAT PUBLISHING
6 IN THE P.M. CYCLE IS A DEATH WARRANT FOR A MAJOR
7 METROPOLITAN DAILY NEWSPAPER. THE STATED INTENT
8 AND PURPOSE OF THE AGREEMENT IS NOW CLEARLY
9 FRUSTRATED BY REQUIRING THE EXAMINER TO REMAIN
10 IN THE AFTERNOON FIELD."
11 DO YOU SEE THAT?
12 A. YES.
13 Q. SO YOU UNDERSTOOD, RIGHT, THAT ONE OF THE DEALS --
14 MR. ALIOTO: IF I MAY USE THE EASEL, YOUR HONOR?
15 Q. -- ONE OF THE ARRANGEMENTS HERE UNDER THE JOA BACK IN
16 1964, ONE OF THE DEALS TO ENABLE BOTH TO SURVIVE WAS THAT THE
17 HEARST CORPORATION THAT WAS SUFFERING A DEFICIT AT THE TIME
18 AGREED TO MOVE ITS PAPER FROM THE MORNING TO THE AFTERNOON?
19 A. THEN?
20 Q. THEN, YEAH.
21 A. YES.
22 Q. YES, 1964.
23 A. YES.
24 Q. YES. HEARST CORPORATION, THE SAN FRANCISCO EXAMINER WAS A
25 MORNING PAPER AT THAT TIME, YES?
1493
1 A. I BELIEVE SO.
2 Q. WELL, OKAY. LOOK AT THE JOA.
3 THE COURT: OH, I THINK --
4 MR. ALIOTO: OKAY.
5 THE COURT: I DON'T THINK THAT'S NECESSARY.
6 MR. ALIOTO: ALL RIGHT. OKAY.
7 Q. NOW -- NOW, YOU UNDERSTOOD THAT ACCORDING AT LEAST TO
8 HEARST, THE AFTERNOON WAS NOT THE PLACE TO BE, AND THEY
9 INTENDED TO GO IN THE MORNING; CORRECT?
10 A. I THINK THAT'S WHAT TIM MEANT BY THAT PARAGRAPH, YES.
11 Q. OKAY. AND DID YOU UNDERSTAND THAT MR. WHITE MEANT THAT HE
12 INTENDED TO GO TO THE MORNING RIGHT AWAY?
13 A. (WITNESS EXAMINES DOCUMENT.) I'M NOT -- HE NEVER CAME TO
14 THE NEWSPAPER AGENCY AND SAID, "GET PREPARED FOR PRINTING THE
15 EXAMINER TOMORROW MORNING," NO. WE DIDN'T --
16 Q. OKAY.
17 A. -- PUT TOGETHER A PLAN OR HAVE ANY CONVERSATION ABOUT A
18 PLAN TO DO ANYTHING WITH THE EXAMINER EXCEPT WHAT HAS BEEN DONE
19 SINCE 1965.
20 Q. NOW, THEN IN THE NEXT PARAGRAPH HE STATES, AMONG OTHER
21 THINGS --
22 A. WHICH WOULD HAVE BEEN IMPOSSIBLE, BY THE WAY, BUT --
23 Q. IT WOULD HAVE BEEN IMPOSSIBLE. YOU SAY IT WOULD HAVE BEEN
24 IMPOSSIBLE, IT WOULD HAVE BEEN IMPOSSIBLE BECAUSE OF THE
25 PRESSES?
1494
1 A. YES.
2 Q. HOWEVER, DID YOU UNDERSTAND AND KNOW THAT THE DLJ HAD
3 PLANNED THAT THE CHRONICLE IN ITS PREPARATION FOR COMPETITION
4 IN 2005 WOULD BEGIN TO BUILD A NEW PLANT IN 2001 OR '2? DID
5 YOU KNOW THAT?
6 A. THE DLJ?
7 Q. YES. DID YOU KNOW THAT?
8 A. NO. I KNEW THERE WAS SOME TALK ABOUT PLANNING FOR THE
9 FUTURE, YES.
10 Q. AND THAT THEY WERE GOING TO SPEND $125 MILLION FOR A NEW
11 PRINTING PLANT IN 2000, I THINK IT WAS 2001 OR '2?
12 A. ALL I KNOW FOR SURE IS THAT THE CHRONICLE COMMISSIONED A
13 STUDY --
14 Q. TO DO THAT?
15 A. -- TO PUT TOGETHER WHAT THOSE ESTIMATES MIGHT BE.
16 Q. OKAY. AND IF THEY COMPLETED THE PLANT IN 2002 OR '3,
17 THERE WOULDN'T BE A PROBLEM ABOUT GOING IN THE A.M.; WOULD
18 THERE, BOTH PAPERS?
19 A. I GO BACK TO YOUR QUESTION DID MR. WHITE MAKE IT CLEAR HE
20 WANTED THE EXAMINER TO GO MORNING IMMEDIATELY, AND I DON'T KNOW
21 WHETHER THAT'S SAID HERE, BUT THAT IS IMPOSSIBLE.
22 Q. YOU UNDERSTOOD ALSO, DID YOU NOT, THAT THE HEARST
23 CORPORATION OWNED HALF OF THE PRESSES?
24 A. THE ASSETS ARE OWNED 50-50.
25 Q. CORRECT. AND SO THEY HAD SOME LEVERAGE, DID THEY NOT,
1495
1 THAT IF THEY WANTED TO GO IN THE MORNING, THAT THEY COULD USE
2 THAT TOO; COULDN'T THEY? YOU UNDERSTOOD THAT; RIGHT?
3 A. NO, I DID NOT UNDERSTAND THAT.
4 Q. I WANT TO DIRECT YOUR ATTENTION ALSO TO PAGE -- THE SAME
5 PAGE, AND IT IS THE SECOND-TO-LAST PARAGRAPH, AND IT STATES,
6 QUOTE --
7 BY THE WAY, COULD THE EXAMINER HAVE USED HALF OF THE
8 ASSETS, HALF OF ITS PRESSES IF IT WANTED TO TO PRINT A MORNING
9 PAPER?
10 A. THAT SOUNDS LIKE A LEGAL QUESTION. I WOULD SAY NO.
11 Q. IT STATES, FINALLY IT STATES, IF YOU'LL GO TO THE SECOND
12 PAGE, IT STATES, QUOTE:
13 "ACCORDINGLY WE HEREBY FORMALLY REQUEST YOUR
14 CONCURRENCE IN OUR MOVING THE EXAMINER
15 EXPEDITIOUSLY TO A.M. CYCLE ALONGSIDE THE
16 CHRONICLE. NOT ONLY WILL THIS CARRY OUT THE
17 INTENT AND PURPOSE OF THE JOA, WE BELIEVE IT
18 WILL HAVE THE MUTUALLY-POSITIVE EFFECT OF
19 REDUCING AGENCY EXPENSES, IMPROVING THE
20 PROFITABILITY OF BOTH THE CHRONICLE AND THE
21 EXAMINER AND ENHANCING BOTH NEWSPAPERS' ABILITY
22 TO COMPETE WITH OTHER PUBLISHERS IN THE REGION."
23 DO YOU SEE THAT?
24 A. YES, I DO.
25 Q. DO YOU AGREE WITH MR. WHITE, THE PUBLISHER OF THE EXAMINER
1496
1 AT THIS TIME, THAT IF HE WENT TO THE A.M. CYCLE, THAT THAT
2 WOULD IMPROVE THE PROFITABILITY OF BOTH THE CHRONICLE AND THE
3 EXAMINER?
4 A. NO DOUBT ABOUT THAT.
5 THE COURT: THIS WOULD BE MOVING THE EXAMINER TO THE
6 A.M. CYCLE IN THE CONTEXT OF THE JOINT OPERATING AGREEMENT; IS
7 THAT THE WAY YOU UNDERSTOOD THIS?
8 THE WITNESS: WHAT TIM PROPOSED IN THE LETTER WAS
9 CHRONICLE'S CONCURRENCE, IF I READ THAT PARAGRAPH CORRECTLY, IN
10 MOVING THE EXAMINER TO THE A.M. CYCLE. PHYSICALLY, PHYSICALLY
11 IMPOSSIBLE TO DO, BUT THAT'S WHAT'S BEEN REQUESTED HERE. OF
12 COURSE, REMEMBERING IT'S IN THE CONTEXT OF THIS BIGGER SPAT, IF
13 YOU WILL, ON OTHER ISSUES. BUT, YES, THAT'S WHAT IT SAYS.
14 THE COURT: WELL, OKAY.
15 BY MR. ALIOTO:
16 Q. I'D LIKE TO READ TO YOU FROM THE DEPOSITION OF MR. ASHER
17 AT PAGE 154.
18 MR. HALLING: COULD I HAVE A MOMENT?
19 MR. ALIOTO: YES. BEGINNING AT LINE 21.
20 (PAUSE IN PROCEEDINGS.)
21 MR. ALIOTO: LINE 21, PAGE 154. ARE YOU READY?
22 MR. HALLING: YEAH.
23 MR. ALIOTO: "QUESTION: SO IF THE ASSETS WERE
24 DIVIDED AND HEARST GOT HALF THE PRINTING PRESSES, YOU WOULD
25 HAVE ENOUGH THERE TO PRINT THE EXAMINER UNDER ITS PRESENT
1497
1 CIRCULATION; RIGHT?
2 "A. WELL, EVEN THEN IT WOULD DEPEND ON
3 EXACTLY HOW THE ASSETS WERE DIVIDED. IF YOUR --
4 IF YOU'RE ASKING ONLY ABOUT THE PRINTING
5 PRESSES, THAT WOULD BE CORRECT.
6 "Q. IN FACT, YOU WOULD HAVE ENOUGH SO YOU
7 COULD PRINT DOUBLE THE PRESENT CIRCULATION OF
8 THE EXAMINER?
9 "A. PRINTING, YES."
10 Q. DO YOU AGREE WITH THAT? DO YOU HAVE ANY REASON TO DOUBT
11 THAT FROM MR. ASHER?
12 A. THERE'S ENOUGH PRESS CAPACITY WITH HALF OF THE ASSETS TO
13 PRINT THE DAILY EXAMINER WITH ITS CURRENT CIRCULATION, YES.
14 Q. AND EVEN DOUBLE. DO YOU HAVE ANY REASON TO DOUBT THAT, UP
15 TO 200,000?
16 A. WITH HALF THE ASSETS, NO. THAT'S POSSIBLE, YES.
17 Q. SO WHEN YOU SAID THAT THERE WOULD BE A PHYSICAL
18 IMPOSSIBILITY BECAUSE OF THE PRINTING, YOU DIDN'T MEAN THAT?
19 A. I ABSOLUTELY MEANT IT. WE USE EVERY PIECE OF IRON WE OWN
20 TO PRINT THE CHRONICLE.
21 MR. ALIOTO: IF IT PLEASE, YOUR HONOR, I WOULD LIKE
22 TO HAVE TWO MINUTES TO REVIEW MY NOTES.
23 THE COURT: VERY WELL.
24 (PAUSE IN PROCEEDINGS.)
25 THE COURT: HOW MUCH LONGER DO YOU HAVE OF THE
1498
1 WITNESS?
2 MR. ALIOTO: TEN MINUTES, FIVE MINUTES.
3 THE COURT: OKAY. THEN LET'S --
4 MR. ALIOTO: PERHAPS NOT, YOUR HONOR. LET ME SAY
5 THIS, YOUR HONOR: THESE LAST DOCUMENTS -- I WILL SAY THIS, I
6 WOULD APPRECIATE IT, IF IT'S CONVENIENT TO THE COURT, IF WE
7 MIGHT RECESS, BECAUSE THE DOCUMENTS, THE LAST DOCUMENTS OF THE
8 WITNESS I HAVE NOT BEEN ABLE TO READ SINCE THE WITNESS WAS
9 TAKEN OVER. IF I CAN REFINE IT, I AM SURE I WILL BE ABOUT 10
10 MINUTES, PERHAPS 20 OR SO TOMORROW, IF IT'S CONVENIENT TO YOUR
11 HONOR.
12 THE COURT: WELL, THAT'S FINE WITH ME, AND IT'S
13 ALMOST 5:00 O'CLOCK, SO I THINK IT'S PROBABLY TIME THAT WE CALL
14 IT A DAY.
15 AS I INDICATED EARLIER, WE'LL BE ABLE TO GO UNTIL IN
16 THE NEIGHBORHOOD OF 3:00 O'CLOCK TOMORROW. AND SO WE'LL HAVE
17 ALMOST A FULL DAY TOMORROW AS WELL.
18 ANY MATTERS TO TAKE UP WITH THE COURT BEFORE WE
19 RECESS FOR THE EVENING?
20 (NO RESPONSE)
21 THE COURT: SEE YOU TOMORROW MORNING AT 8:30.
22 (WHEREUPON PROCEEDINGS ADJOURNED AT 4:50 P.M.)
23
24
25
previous /