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ADVO, INC. v. PHILADELPHIA NEWSPAPERS

June 10, 1994

ADVO, INC., Plaintiff,
v.
PHILADELPHIA NEWSPAPERS, INC. d/b/a PHILADELPHIA INQUIRER and PHILADELPHIA DAILY NEWS, Defendant



The opinion of the court was delivered by: BY THE COURT; MARVIN KATZ

 AND NOW, this 10th day of June, 1994, upon consideration of the parties' submissions, and after a hearing, it is hereby ORDERED that Defendant Philadelphia Newspapers Inc.'s Motion for Summary Judgment is GRANTED on the federal claims and the state law claims are DISMISSED without prejudice.

 I. FACTS

 A. Overview

 A newspaper chain is competing to distribute advertising circulars in the Philadelphia area with the country's largest full-service direct mail marketing firm. The newspaper chain's Motion for Summary Judgment raises the viability of its competitor's predatory pricing claim in this antitrust case. I find that there is no showing of a dangerous probability of achieving monopoly power in the relevant market.

 Plaintiff Advo, Inc. (Advo) brings claims against defendant Philadelphia Newspapers, Inc. (PNI) for allegedly violating Section 2 of the Sherman Act. *fn1" Advo accuses PNI of monopolizing and attempting to monopolize the market for high density distribution of printed Advertising Materials *fn2" and Advertising Circulars. *fn3" Compl. PP 30-49. Plaintiff also brings a claim against PNI for tortious interference with Advo's contractual relations with its customers in violation of state law. Compl. PP 50-55.

 Advo distributes printed advertising materials to households via mail and hand deliveries. Compl. P 4. Advo is the nation's largest full-service direct mail marketing company. Def. Ex. 12. Advo's revenues in fiscal year 1993 were $ 911 million. Stipulated Facts, P 3. Advo delivers more than 24 billion pieces of advertising annually, and reaches, on average, more than 53 million households each week. Def. Ex. 12. In October, 1992, Advo acquired CBA Shared Mail Systems, Inc. (CBA). Compl. P 26. Prior to the acquisition, CBA competed against Advo in the Advertising Circulars market. Compl. P 22.

 Defendant PNI owns and operates the Philadelphia Inquirer (Inquirer) and the Philadelphia Daily News (Daily News). Stipulated Facts, P 12. The Inquirer and the Daily News are the only two newspapers that cover the entire eight county greater Philadelphia area. *fn4" Pl.'s Ex. 31, p. 2. Run-of-Press (ROP) advertisements are the advertisements that are printed on newsprint and appear directly on a newspaper's editorial pages. Compl. P 10. PNI serves many different ROP advertisers. Pl.'s Ex. 31, p. 5. No ROP advertiser accounts for more than five (5) percent of PNI's ROP advertising revenues. Id.

 Advo delivers circulars in one of two ways: either shared mail or hand delivery. Companies that make deliveries in this manner are known in the trade as alternate delivery companies. Shared mail combines the circulars of multiple advertisers in one mailed package. Compl. P 12. Shared mail and hand delivery packages can be targeted to specific zip codes for delivery. Compl. P 12. The mix of circulars in these packages may vary from week to week and from place to place. Compl. P 14.

 Traditionally, newspapers included preprinted advertising circulars as inserts in their papers. These circulars, however, only reached subscribers and other purchasers of the papers. Consequently, traditional newspaper advertising circular distribution could not offer advertisers the desired 95% saturation rates achieved by alternate delivery companies. Pl.'s Ex. 8, DiMartino Dep. Ex. 13, p. 6. In response to the success of alternate delivery companies, newspaper companies like PNI developed programs to provide advertisers with circular distribution to non-newspaper subscribers by mail and/or hand-delivery. Compl. P 18. These programs generally are known as Total Market Coverage (TMC) plans. Id. By 1991, ten of twelve of PNI's newspaper competitors had implemented TMC programs. Pl.'s Ex. 8, DiMartino Dep. Ex. 13, p. 6.

 Principal advertisers or "base players" are key to a firm's successful entry into the Advertising Circulars market. *fn5" An alternate delivery company will not typically enter a new market without securing a base player. See Pl.'s Ex. 15, Kamerschen Dep., p. at 146.

 In the greater Philadelphia area, there are a limited number of base players. Pl.'s Ex. 31 at p. 21. Acme and Super Fresh, two supermarket chains, are the only base players who on their own "could support an alternate delivery program" in the Advertising Circulars market. *fn6" Pl.'s Mem. at 11. Acme and Super Fresh are both Advo alternate delivery customers. PNI stated that until it obtains a base player for the Pennsylvania suburbs it will not be able to make a profit on its TMC program. Pl.'s Ex. 26, Rossi Dep. at 355.

 Base players typically utilize ROP advertising in addition to preprinted circular distribution in their advertising plans. Base players use ROP advertising to build images, foster comparison shopping and to create multiple weekly presence. Pl.'s Ex. 31 at p. 10. In 1992, Super Fresh and Acme placed, respectively, $ 1,099,000 and $ 2,300,000 worth of ROP advertising with PNI. Id. at 34-35. Base players use advertising ...


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