/ 15 November 2013

Newspaper skirmish draws blood

David vs Goliath: A community newspaper claims it was deliberately put out of business by Media24.
David vs Goliath: A community newspaper claims it was deliberately put out of business by Media24.

Plotting under a lapa over a few cigarettes in Welkom arguably led to the demise of Gold-Net News, a small, privately owned but profitable community newspaper serving the Goldfields area, leaving Media24 the dominant player in roughly 16 towns in the Free State.

This case before the Competition Tribunal has been interesting, not only because it's the first to be heard about the use of underpricing to drive out a competitor but also because it reveals the ugly underbelly of the community newspaper sector.

Testimony before the tribunal and research by the Competition Commission suggests there was a systematic and co-ordinated plan to undermine a competitor, in this case Gold-Net News.

The strategy was allegedly devised to protect Media24's star performer, Vista, a newspaper operating in many of the same areas as both Gold-Net News and Media24's Goudveld Forum.

Conversations between two senior Media24 managers about how to undercut Gold-Net were allegedly held out of hearing of the staff.

An agreement was also made not to discuss the matter by email because it would "get ugly when the Competition Commission got their hands" on the information.

Complaint about predatory pricing
This is according to a senior Media24 manager and head of the community newspaper sector for the Volksblad at the time, Wian Bonthuyzen, who testified at the tribunal.

The complaint about predatory pricing was brought against Media24 by Berkina Twintig, which traded as Gold-Net News.

Berkina accuses Media24 of pitching the Goudveld Forum against Gold-Net News and running the Goudveld at a loss, forcing Gold-Net finally to close down in 2009.

The commission agrees with Berkina, saying Media24 ran the Goudveld at a loss to undercut Gold-Net. The prize was advertising.

The commission said the margins were such that no newspaper would have been able to compete, leaving the dominant player, Media24, or its star player, Vista, to reap the benefits.

Media24 has denied the commission's allegations that the costs of the struggling Goudveld were covered between 2004 and 2009 in order to "inhibit or deter" competition.

Painting a very different picture
But the testimony of Bonthuyzen, who was subpoenaed to testify at the tribunal, paints a very different picture.

On Tuesday, he said the Goudveld was already running at a loss in 1999 when he joined Media24. He said "it was never feasible".

He said Media24 had largely ignored Gold-Net as a competitor until it was taken over by Hans Steyl, a former founder and co-owner of Vista. Bonthuyzen described Steyl as a real "newspaper man" who knew what he was doing.

"Steyl set up Vista from the start and that is why Vista was such a good name brand," he said, so there was concern that he could present a formidable opposition to Media24.

Bonthuyzen said the Volksblad general manager, the late Naas du Preez, "normally sat at the lapa at the Volksblad to have a few cigarettes and make decisions under the lapa regarding Gold-Net News".

Information was conveyed verbally to relevant staff because they were aware they were being scrutinised by the commission.

R300 000 to sway the case in Media24's favour
He said it was not clear how many senior managers at Media24 were told about the decisions made there, although he doubted that they would have been ignorant of a decision to share costs and prop up the Goudveld — which was closed down after Gold-Net News's demise.

Bonthuyzen admitted on Wednesday during cross-examination by Media24 that he had asked for about R300 000 to sway the case before the commission in Media24's favour.

He said this was money owed as a result of labour action against Media24.

Bonthuyzen said it was not Media24's prime intention to put Gold-Net News out of business.

"[But] we knew as long as the Forum was there Gold-Net News would never grow because we meet and beat their prices."

Augnischa van Eck, manager of the Volksblad Group and the representative of Media24, said in her affidavit that Gold-Net News's real competitor was Vista, not the Goudveld.

Rates not predatory
She said that rates charged by the Goudveld were not predatory and it covered its costs and contributed towards shared costs each year, which was why Media24 continued to operate the newspaper.

Trudi Makhaya, deputy commissioner of the commission, said any anticompetitive case, even one where pricing is lowered, has a detrimental effect on the consumer.

"At first consumers benefit from the lower rates, but these return to normal or move even higher where a competitor is removed."