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Ad/Sat Sues Associated Press

Magazine article Editor & Publisher

Ad/Sat Sues Associated Press

Article excerpt

AD/SAT, A DIVISION of Skylight Inc., has filed an antitrust suit against the Associated Press, alleging that the nonprofit cooperative is engaging in monopolistic and anti-competitive business practices through the implementation of AdSEND, the AP ad delivery service.

The suit, filed Sept. 14 in U.S. District Court for the Southern District of New York, names as defendants and co-conspirators in an "unlawful group boycott" the AP; Newspaper Association of America; Newspaper National Network; Newark Star-Ledger; Birmingham News Co.; Great Lakes Media Co., publisher of the Oakland Press in Pontiac, Mich.; News & Observer Publishing Co., publisher of the Raleigh, N.C., News & Observer; the Daily Oklahoman, Oklahoma City and Lexington Herald-Leader.

In the suit, Ad/Sat charges that the AP has a monopoly in the wire news and photo markets and is attempting to extend the monopoly to the advertising transmission market by charging advertisers below-cost transmission fees that will force Ad/Sat out of business.

Ad/Sat transmits its ads over the AP satellite system, which reaches nearly all U.S. daily newspapers. Ad/Sat pays the AP an annual rental fee for the satellite space, which accounts for about 15% of Ad/Sat's overall operating expense in a given year.

Because the AP owns and operates the satellite network, Ad/Sat contends that the AP can subsidize any losses it sustains from low ad transmission rates with AP membership dues. The AdSEND rates being offered to advertisers are lower than Ad/Sat's cost of renting the space, giving AdSEND an unfair cost advantage, according to the suit.

While Ad/Sat charges newspapers a transmission fee of $20 to $28, AdSEND transmission costs will be borne by advertising agencies that use AdSEND, the lawsuit contends.

According to an AdSEND rate card, an advertiser that contracts to send 100,000 recruitment ads annually could pay a transmission fee of as little as $1 per classified ad, per newspaper, or $4 per display ad, per newspaper, for 12-hour delivery service.

Also, AP plans to install and maintain the necessary AdSEND hardware and software at AP member newspapers at no charge, while Ad/Sat charges newspapers an annual fee of $7,500 to $12,500 to cover equipment and maintenance costs.

Ad/Sat contends that the value of the equipment AP will be giving each newspaper is $17,000.

"If AP is permitted to implement the AdSend program as announced, with free hardware, software, maintenance services, and advertising transmissions for participating newspapers, and below-cost predatory prices to advertisers, then Ad/Sat will suffer serious and irreparable harm....," the suit states.

"Ad/Sat cannot possibly compete if Associated Press predatorily charges prices below Ad/Sat's transmission costs, which are largely determined and controlled by Associated Press," the suit continues.

The suit contends that since 1987, the various owners of Ad/Sat have invested more than $30 million in the development of its business.

During 1993, Ad/Sat says it delivered more than 26,000 ads to more than 400 newspapers and those ads involved 56,000 receptions by Ad/Sat-affiliated newspapers worth an estimated $400 million in ad revenues for the newspapers served.

The court papers point to several entangling relationships among the defendants. The Associated Press provides services to Newspaper Association of America member papers, and the NAA has formed the NNN, through which it is offering advertisers the opportunity to place national ad buys at special rates.

Frank A. Daniels, president of the News & Observer Publishing Co., is also chairman of AP, and Donald Newhouse, immediate past chairman of the NAA, is the head of Newhouse Newspapers, which owns the Star-Ledger and Birmingham News. …

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