David Schneiderman, head of Village Voice Media (VVM)--the New York-based alternative-weekly group that owns the Seattle Weekly--has emerged as a focus of an intensive U.S. Department of Justice antitrust investigation into a controversial market-splitting deal between his company and rival New Times.

The two largest chains in the alt-paper industry, VVM and New Times competed directly against each other in Los Angeles and Cleveland until October 2. On that date, they announced their agreement, effective immediately, to divide the markets. Each company shuttered one of their competing papers--VVM's Cleveland Free Times and New Times' New Times Los Angeles--thus establishing monopoly status for the surviving papers, VVM's LA Weekly and New Times' Cleveland Scene. According to sources familiar with the deal, VVM also agreed to pay New Times $9 million for vacating the Los Angeles market, while New Times paid VVM less than $1 million for corresponding control in Cleveland.

The brazenness of the division immediately raised eyebrows among antitrust experts. It apparently caught the eye of the Justice Department as well. Cleveland sources say the department acknowledged receiving numerous complaints from readers, advertisers, and at least one prominent politician (progressive Cleveland Congressman Dennis Kucinich). Several weeks ago, the Los Angeles Times broke the news of the investigation.

The government's seriousness was highlighted when investigators began deposing witnesses under oath in Cleveland earlier this month. They are asking about the deal, the competitive positions of the two shuttered papers, and what it would take to restore competition in the affected markets, according to David Eden, the Free Times' editor at the time of its closing. The investigation could conceivably lead to criminal charges and fines of more than $10 million against both chains.

How the investigation may affect the Seattle Weekly is an open question. Weekly editor Knute Berger referred all questions to VVM in New York; a call there was not immediately returned. In response to questions from other media regarding the investigation, VVM has said only that they will respond in due course.

Schneiderman does appear to be committed to the Seattle market; he has described the Weekly as his laboratory for reinventing alt-journalism, and he recently redesigned the paper and switched editors. On the other hand, according to industry sources, the paper appears to break even operationally but may be losing close to $1 million annually when debt service and corporate overhead are factored in. Thus, if the costs of defending against the investigation mount high enough to substantially change VVM's financial position--or loosen Schneiderman's grip on the company--that could mean real trouble for the paper. (Full disclosure: I am a former Free Times writer, and this summer turned down a position at the Seattle Weekly.)

Even before news of the investigation broke, Weekly sources reported morale at the paper was flagging. Ultimately, in the wake of the Free Times' closure, some staffers fear the Weekly may be next. Eden says that with the current management of VVM, they have cause to be worried. "Tell the people at Seattle Weekly to watch their backs," he says.