Antitrust unlikely to re-emerge in alt-weekly merger.

Despite a lengthy approval process, the Justice Department is unlikely to make major changes in a deal that would have the alternative weekly newspaper chain New Times Inc. acquire the owner of the LA Weekly, Village Voice Media Inc.

The proposed merger, announced early last week, would create a combined company with newspapers in 17 markets and annual revenue of $180 million.

In the next several weeks, the Justice Department will be asking executives at both publishing houses for internal documents and e-mails in order to determine what each company's strategic business decisions have been in the various markets they publish.

The key for both privately held companies, according to numerous antitrust experts interviewed last week, is to prove to the Justice Department that their proposed merger, which creates a company with about one-quarter of alternative weekly circulation nationwide, would not hurt consumers by preventing competition.

Both companies paid hundreds of thousands of dollars in civil penalties two years ago to settle a legal claim brought by the Justice Department over the papers' anti-competitive business practices here. Specifically, New Times and Village Voice had agreed to close papers in Los Angeles and Cleveland--where they competed against each other--so that each would hold a monopoly in one of the markets.

But the merger may not face as many legal challenges.

"This transaction doesn't alter the competitive terms in these markets because no papers are being shut down," said David Schneiderman, chief executive of Village Voice Media, which owns five papers other than the LA Weekly. When compared to previous legal issues, he said, "Our lawyers think this is different."

New Times and Village Voice are the largest players in an alternative weekly market once dominated by independently-run regional papers. Village Voice, whose flagship publication has a weekly circulation of 250,000, was acquired in 2000 by an investor group that includes Schneiderman, a former editor and several investment firms.

As part of last week's long-anticipated deal, which excludes cash or stock payments, shareholders of Phoenix-based New Times, would own 62 percent of the merged company. Right now, New Times is owned by a trust controlled by James Larkin, its chairman and chief executive, and Michael Lacey, its executive editor. Both will continue in those roles under the merged company. Schneiderman would head the online efforts.

It is anticipated that the Village Voice investment group will be bought out by New Times' shareholders in several years.

The proposed merger must obtain approval from the Federal Trade Commission under the Hart-Scott-Rodino Act. That means both companies are subject to a 30-day period of federal overview that is likely to get extended by several months.

Getting a close look

One reason the merger may face more questions is because of the consent decree signed by both companies two years ago to end an antitrust suit brought by the Justice Department in 2002 that accused them of creating a monopoly in Los Angeles and Cleveland.

According to the Justice Department, both companies colluded to close the Village Voice's Cleveland Free Times, which had competed with New Times' Cleveland Scene, and to close New Times L.A., which had competed with the LA Weekly. They also agreed not to open competitive papers in those markets or sell the assets of their closed papers to former employees or contractors.

The federal government was joined in its legal action by California Attorney General Bill Lockyer and Los Angeles County District Attorney Steve Cooley, who filed a joint lawsuit alleging both companies swapped markets to raise their advertising rates.

In 2003, New Times and Village Voice settled their dispute with the Justice Department and, in a separate settlement with the local agencies, each agreed to pay $305,000 in civil penalties and $70,000 for attorney fees and costs.

This time, the Justice Department "will look at L.A. very closely," said Yee Wah Chin, senior counsel at Mintz Levin Cohn Ferris Glovsky & Popeo in Washington. "The same issues arise. The question is whether they can make a case that the marketplace has changed and that alternative media has risen sufficiently so that just having one big alternative print media is not such a dreadful thing."

But the consent decree may actually help New Times and Village Voice in making that case.

For one thing, neither company is looking to open a competing newspaper in the Los Angeles or Cleveland areas because they closed their papers in both cities. For another, as part of the consent decree, New Times agreed to sell off the assets of New Times L.A. to a competitor, Los Angeles-based Southland Publishing Inc., which picked up its computers and 600 vendor boxes for use at its own alternative weeklies: Los Angeles CityBeat, Los Angeles ValleyBeat, San Diego CityBeat, Pasadena Weekly and the Ventura County Reporter.

With an existing competitor such as CityBeat, LA Weekly wouldn't be the only game in town.

"There were two competing newspapers in Los Angeles when they decided to shutter one in Cleveland and Los Angeles, which reduced the competition and made it appear in Justice's eyes more monopolistic," said David Comden, group publisher of Southland Publishing. "This is different. Now comes this consolidation of the two companies but no net change in the number of products in Los Angeles."

The merger would not shut down any newspapers, leaving no assets to be divvied up to competitors. And the combined company would be unlikely to change the name of the LA Weekly to include "New Times" in the title, which is forbidden under non-competitive requirements of the consent decree.

In making their case to the Justice Department, both newspapers could argue that a combined company would reduce overall costs that would be passed down to consumers in the form of lower advertising rates.

"It's a different standard to be applied here," said Joe Sims, a partner in the Washington office of Jones Day. "In the first situation, they weren't merging--they were essentially allocating market share. They were saying, 'You get L.A., I get Cleveland.' Scenario 2 is they merge. You look at the anti-competitive effects and you balance it against the pro-competitive benefits, things like reduced costs."

Perhaps the biggest wildcard is the effect the merger would have on national advertising for competitors of the combined company. In Los Angeles, that would include CityBeat and its sister publications, as well as Easy Reader.

As part of the deal, Village Voice Media would switch its advertising affiliation from a cooperative network of alternative weeklies called the Alternative Weekly Network to the Ruxton Group, an advertising network owned by New Times.

Village Voice makes up only six of 110 member newspapers that use AWN, but its revenue accounts for one-third of the group's total revenue. Its papers are in the top 25 markets in the country.

"These are negatives for us," said Mark Hanzlik, executive director of the AWN in Sacramento. "They are leaders in our industry, in terms of advertising, too. The door will always be open because of papers like the Village Voice and LA Weekly."

The challenge for the AWN is to make up lost revenue caused by the departure of Village Voice. But the change in advertising networks is unlikely to impact the Justice Department's decision on the merger.

"I don't think the Justice Department is going to say this won't go through," Comden said. "It's effectively a change in ownership, not a consolidation of media. No fewer papers are going to exist."