On Valentine’s Day, Anthony Allegretti, president of MainStreet Media Group, a company that publishes eight community newspapers in San Diego County, wrote letters to two fellow publishers. One went to Jim Kydd, owner of the Coast News Group, which publishes the Coast News and Rancho Santa Fe News, and the other to Julie Hoisington, owner of the San Diego Community Newspaper Group, which publishes the La Jolla Village News, Beach and Bay Press, Peninsula Beacon, and San Diego Downtown News.
Despite the date, the letters expressed no adoring praise. Instead, each missive consisted of two letters and 28 pages of material downloaded from the legal website Lexis.
“Your newspaper, the Rancho Santa Fe News, has violated the law through below cost selling,” read the cover letter to Jim Kydd. “The Rancho Santa Fe News has caused the Rancho Santa Fe Review to lose sales and profits of no less than $300,000 during 2010.”
Allegretti claimed that Kydd’s publication, the Rancho Santa Fe News, was violating California’s Unfair Practices Act by undercharging for advertising.
“According to California Law, the Rancho Santa Fe Review is entitled to injunctive relief awards of no less than three times the amount of actual damages, or $900,000 plus attorney fees,” read the letter.
“If the below cost selling of advertising does not cease by March 15, 2011, MainStreet Communications will instruct its attorneys to commence drafting a lawsuit. Once that process begins, MainStreet Communications will not settle until the court has ruled.”
The second letter to Kydd included the statement: “MainStreet’s attorneys estimate that to take this matter thru trial will cost up to $2,000,000.”
Julie Hoisington’s letters were nearly identical. In his cover letter to Hoisington, Allegretti claimed that she was selling below-cost ads in the La Jolla Village News, which was hurting advertising revenues at MainStreet’s paper, the La Jolla Light.
The letters are the latest skirmish in what has been an ongoing clash between Allegretti and local competitors, one that started shortly after Allegretti’s company, MainStreet Media, ventured south in 2004 from its Gilroy, California headquarters and began buying community papers in San Diego County.
“I’m sure this is a scare tactic that he’s probably tried before,” Kydd says from a narrow cubicle inside Coast News Group offices. Kydd, who started his paper in 1986 out of the garage in his Encinitas home, is not bashful in showing his contempt for Allegretti.
“He knows some papers are hurting and now is the time to push them out. But I won’t be bullied.”
According to the display-ad rates at each paper, both Hoisington and Kydd charge less than their MainStreet competitors. They say they can because their overhead is lower than MainStreet’s and it costs less to run their businesses.
The price for one full-page black-and-white ad in Hoisington’s La Jolla Village News is $1480 for one week or $1101 per week for 26 weeks. In Allegretti’s La Jolla Light, the same ad costs $2420 for one week or $1950 per week for 26 weeks.
In Kydd’s Rancho Santa Fe News, a full-page black-and-white ad costs $1305 for one week, $810 per week for 26 weeks. In Allegretti’s Rancho Santa Fe Review, the ad costs $1315 and $1035, respectively.
Although Kydd and Hoisington consider Allegretti’s letters just another attempt to corner the community-newspaper market in San Diego County, both fear that he will stop at nothing to achieve his goal.
In fact, Allegretti has a long history of buying community newspapers. From 1989 to 2000, he grew the Independent Media Group, where he was chief executive, from 4 daily newspapers to 44 publications throughout Michigan, Wisconsin, and Nebraska.
In 2000, those papers were sold, and Allegretti moved west to California’s Central Valley to run Pacific-Sierra Publishing, where he continued to buy small daily and weekly newspapers.
Four years after arriving in California, Allegretti and his senior vice president, Steve Staloch, along with investors, bought out Pacific-Sierra and formed MainStreet Media Group, acquiring the La Jolla Light in the process.
Now, seven years later, with backing from Brookside Capital Partners Management out of Greenwich, Connecticut, and Housatonic Partners, MainStreet Media Group has grown from 8 publications to 17. The company owns the La Jolla Light, Del Mar Times, Solana Beach Sun, Ramona Sentinel, Poway News Chieftain, Rancho Bernardo News Journal, Rancho Santa Fe Review, and Carmel Valley News. In 2009, the company acquired three competing newspapers in Del Mar, Carmel Valley, and Rancho Santa Fe and began calling its San Diego operations MainStreet Communications.
“I knew he was going to come into town and try and buy everyone out. This letter,” Kydd holds it up, “is a scare tactic so that he can buy my paper and have a monopoly. He wanted to buy me out, but I told him no, not for any price.”
Inside San Diego Community Newspaper Group’s offices near the corner of Cass Street and Garnet Avenue in Pacific Beach, Hoisington, who started publishing the Beach and Bay Press in 1988 and the La Jolla Village News in 1993, talks about her experience with Allegretti since he took over the La Jolla Light. Hoisington says that she has received letters from Allegretti in the past. And on two occasions, he offered to buy the La Jolla Village News.
“He threw me a ridiculously insulting offer a few years ago, after I received the first letter. This time, we met, and I told him he was a bully, but if he really wanted me out, then make me a fair offer. I gave a number. He followed with a letter of intent with some ridiculous conditions attached,” she says.
“I have no problem with competition in the marketplace. But since Allegretti and the MainStreet Media Group took over, there’s been a different type of competitiveness.”
Hoisington adds, “We are the real local community newspapers. We’ve raised our children in the community, and we run our business here. But my concern is that they are a corporation with investors and money in the bank. I don’t have deep pockets to go through some lawsuit. I am concerned that I might have to play the legal game.”
In his letters to Hoisington and Kydd, Allegretti referred to a 2008 predatory-pricing court case, Bay Guardian Company vs. New Times Media, LLC. The Bay Guardian newspaper was awarded $21 million in damages after a jury found the Guardian’s rival alternative newspaper, the SF Weekly, guilty of underpricing ads with the intent to drive the Guardian out of business. In that case, the Guardian presented evidence that shortly after New Times Media acquired the SF Weekly, a corporate executive told Weekly staff that New Times “would make the Weekly ‘the only game in town’ by subsidizing aggressive advertising sales,” according to a November 24, 2010 article in the San Francisco Chronicle.
Allegretti warned Hoisington and Kydd that he has been in contact with the same legal team that represented the Guardian.
However, “It is only predatory pricing if the price reduction is implemented for the purpose of driving a competitor out of business,” says Richard Spirra, who practices media law in San Diego.
“There are legally permissible reasons for a newspaper, or any other business, to cut the price it charges customers to below the company’s cost of producing its product. For example, a company may offer a significant discount to new customers to generate new business.”
Predatory pricing cases are difficult to prove, says Spirra. “Under the applicable California law, if the defendant company’s owner or employees testify that the company had a valid reason for reducing its prices, the plaintiff must convince the jury that the company’s real reason for decreasing prices was to drive the plaintiff out of business. This is difficult because, in most cases, it is unlikely that an employee of the company will admit, or that there will be notes or memos that state, that the purpose of the price reduction was to drive a competitor out of business.”
Hoisington and Kydd say that the antitrust laws Allegretti cites are meant to protect small businesses like their own from large ones like MainStreet, not the other way around.
Jeffrey Shohet, who practices antitrust and complex business litigation in San Diego for DLA Piper, agrees.
“Predatory price litigation is typically a remedy for the smaller competitor to challenge the pricing practices of its more dominant rivals. Typically, the predatory ‘pricer’ is the larger company with resources to price below its cost and outlast its smaller rivals who cannot match such low prices for very long.”
Tracy Pendergast publishes the luxury real estate magazine San Diego Premier Properties and Lifestyles. In December 2009, MainStreet Communications acquired part of Premier. One year later, frustrated by Allegretti’s business tactics, Pendergast decided to buy Premier back. I called her office to ask about her experience with Allegretti.
“During our publisher meetings, he would make comments about sending letters to his competitors for selling ads below cost. He said that, technically, papers only needed to sell one page below cost to violate the law.”
Asked to comment, Allegretti stated by email, “This is a legal matter and I have no comment on pending legal matters.”
Steve Staloch, vice president of MainStreet, Joe Niehaus of Housatonic Partners, and Donald Hawks of Brookside Capital Partners Management also refused to comment.