TWO MONTHS AFTER closing papers in Los Angeles and Cleveland, newsweekly companies Village Voice Media and New Times are being investigated for possible violations of antitrust law. Village Voice Media owns Seattle Weekly and five other so-called alternative weeklies, including the Village Voice in New York. Phoenix-based New Times publishes 11 newspapers, none in the Northwest.
In early October, the companies entered into what industry experts consider an unprecedented arrangement. In exchange for $8 million from Village Voice Media, New Times shuttered its New Times Los Angeles, a competitor with Village Voice Media's LA Weekly. For an undisclosed sum, Village Voice then closed Free Times, its Cleveland weekly, leaving the alt-weekly market there to New Times' Cleveland Scene.
Legal experts characterize the deal as carving up newspaper markets in each city and leaving the two companies with a monopoly on small advertisers in their respective markets. Asked if the deal flirted with violating the Sherman Antitrust Act, Stephan Barnett said, "Oh, yeah." Barnett is a professor of law at the University of California at Berkeley and an expert on newspaper antitrust issues. "What you have is a division of territories," he says. "A division of markets is something special—it's illegal per se."
Thomas Boeder, an antitrust lawyer with Perkins, Coie in Seattle, calls such a deal "one of the most straightforward ways to limit competition." Antitrust law is intended to foster competition and restrict monopolies.
The deal quickly caught the attention of the U.S. Department of Justice, which began an investigation. The Justice Department has been joined by the California Department of Justice, the Los Angeles County District Attorney's office, and comparable agencies in Ohio.
Penalties for violation of antitrust laws range from a $10 million fine for corporations to a $350,000 fine for individuals for civil violations; in the case of criminal charges, the fines are $10 million and $350,000 plus up to three years in jail for individuals.
Barnett says he wonders how lawyers for the two companies could have missed the antitrust issues. "The lawyers do seem to have blown it," he says. Says Boeder: "They must have some theory I've never heard of before."
Under one scenario, the Justice Department could get a judge to force the two companies to reopen their respective papers. It could also compel them to sell the assets of the closed papers to investors who would then launch competing publications.
Village Voice Media chairman and chief executive officer David Schneiderman declined to comment. Reading from a statement, company spokesperson Brian Faw in New York said, "We are in receipt of an inquiry from the Department of Justice. The company will be responding to it fully and in due course."
New Times chairman and CEO Jim Larkin did not return a request for comment.