SF Chronicle Accused of Predatory Ad Rates

SAN FRANCISCO (CN) - The owner of The San Francisco Chronicle paid an inexperienced family $60 million to "buy" the paper's main rival and began offering below-cost advertising rates to further shut out the competition, The San Francisco Examiner's new owner claims in court.

The San Francisco Newspaper Company, which bought the Examiner in 2011, seeks a court order stopping its former owner, Hearst Corp., from the alleged anti-competitive pricing. It also demands damages for the money it claims was lost in the rigged market for daily newspapers sales.

"For many years, the Chronicle has charged a much higher price for display advertising space in its newspaper than charged by the Examiner, due to the Chronicle's greater paid circulation and much higher costs," the Examiner's owner claims in Superior Court. "Yet, since plaintiff purchased the Examiner, defendants have reversed that practice, by secretly offering advertising space to key customers of the Examiner at rates that are substantially lower than those of the Examiner - and far below defendants' cost for that space." (Emphasis in original.)

The lawsuit continues: "The rates that defendants secretly and discriminatorily have offered to these key Examiner customers also are below the rates that appear on the published advertising rate card for the Chronicle, and have been used by defendants as 'loss leaders' in violation of California law."

The Examiner says the decision to undercut its ad rates was made by publisher Frank Vega, who "had personal involvement in, and directed pricing decisions for, key advertising accounts" for which the two papers competed.

Also named as defendants are Chronicle President Mark Adkins and Vice President for Advertising Jeff Bergin.

"Defendants acted in concert with each other for the common purpose of injuring the Examiner, their most direct and only significant competitor for advertising sales to customers who wish to purchase display advertising in a San Francisco daily newspaper," the lawsuit states.

From 1965 to 2000, the two papers competed under a joint operating agreement that "limited their competition to editorial matters," according to the lawsuit.

But the Examiner says daily readership changed as evening TV news edged out evening papers like the Examiner, and the Chronicle became the dominant daily newspaper.

Hearst, which owned and operated the Examiner for most of its history, decided to buy the competition, but was ordered to first sell the Examiner by the U.S. Justice Department.

To ensure the Examiner could not effectively compete, Hearst "devised one of the most unique transactions in American newspaper history," the suit says, and sold the Examiner in 2000 to the Fangs, "a local family with no experience in owning or operating a daily newspaper."

"And rather than receiving any proceeds for this 'sale' to the Fangs, Hearts paid the Fangs about $60 million to assume ownership of the Examiner," the Examiner's current owner claims. (Emphasis in original.)

That family sold the Examiner in 2004 to Clarity Media Group, and in 2011 the paper was bought by the San Francisco Newspaper Company.

Before the 2011 purchase, the Chronicle allegedly charged an average of $14,000 per page of display advertising but now sometimes charges less than $1,000 per page and subsidizes these "loss leaders" with revenue from other Hearst properties, including 15 other daily newspapers.

The Examiner, run by William Randolph Hearst beginning in 1887, was long the flagship of the Hearst media empire. The publication is now operated as a free daily tabloid by the San Francisco Newspaper Company, which has recently purchased the two biggest Bay Area alternative weeklies, The San Francisco Bay Guardian and SF Weekly.

The San Francisco Newspaper Company is represented by Ralph Alldredge of Kilpatrick, Townsend & Stockton, and seeks injunctive relief and damages for alleged violations of the California Unfair Practices Act.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit