TOBACCO GIANT STOPS BUYING MAGAZINE ADS

Philip Morris Move Is Latest Blow to Beleaguered Publishing Industry

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CHICAGO (AdAge.com) -- The cigarette industry's dominant player has not bought a single magazine ad in 2002. And Philip Morris says it's cutting back significantly for
the rest of the year in what could be the last call for its paid media advertising.

The fallout from the cutback will deal a serious blow to the recession-plagued publishing industry. Philip Morris accounted for $114.7 million of the $267 million the tobacco industry spent on magazine advertising in 2001.

More significantly, it could signal a near or complete withdrawal of the industry bellwether from the last refuge in mass media: Philip Morris catapulted from also-ran to industry domination by harnessing the power of media advertising. The Marlboro Man, Advertising Age's top ad icon of the 20th century, rode off TV screens in 1971 with the tobacco industry's voluntary ban on broadcast advertising and off billboards in 1999 as part of the industry's Master Settlement Agreement with states attorneys general.

"I'm assuming [Philip Morris] did an analysis of where they're getting the most impact, and it's just not [in magazines]," said Rob Campagnino, senior tobacco analyst at Prudential Securities.

Bad news for publishers
Even though tobacco's print ad expenditures are tiny, compared to the $6.6 billion spent on

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retail incentives like promotional allowances in 1999 (the most recent figures available from the Federal Trade Commission), Philip Morris' pullback is hardly good news for magazine publishers suffering through a stagnant ad economy.

"I'm going to slit my wrists," said one high-profile publisher, who nonetheless believed some ads for Parliament were slated for some women's magazines later in the year.

Philip Morris' move essentially shuts out monthlies for the first quarter because of production deadlines; weeklies could still get some ads. But publishers are uncertain about cigarette ads bouncing back, saying the tobacco unit of Philip Morris Cos. has been frustratingly opaque about its plans for the rest of the year.

"Nothing's been placed," said a high-ranking executive at a major magazine company. "No one's getting the business," the executive added, saying Philip Morris' message for the rest of 2002 seems to be "don't call us; we'll call you."

Big announcement imminent?
Some magazine executives -- all of whom would speak only on condition of anonymity -- view the lack of explanation

Philip Morris Cos. is renaming itself Altria. This is the new logo.
from Philip Morris as a sign of an imminent large-scale announcement regarding its plan for magazines.

"It's safe to assume most [of the business] is now gone," said another high-profile publisher pessimistic about Philip Morris' future marketing plans.

Philip Morris has been reducing its magazine spending -- by 50% from 1999 to 2001, according to the company -- largely due to its voluntary departure from more than 40 magazines with high youth readerships and its decision to stop buying the back cover of any title, once a high-profile platform for cigarette ads.

But the company does not bill its decision to further reduce print advertising in 2002 as a youth-smoking prevention tactic.

"We have made a business decision to reduce our magazine advertising in 2002, and that is going to result in a reduction in the number of publications in which we'll advertise," said Brendan McCormick, manager of media affairs at Philip Morris USA.

For now, there's no indication the rest of the tobacco market will follow the leader.

"Philip Morris' marketing dollars can be better spent focused toward point-of-sale advertising," said Bonnie Herzog, tobacco analyst at Credit Suisse First Boston. "I wouldn't doubt it if all of the companies do this."

Can afford cutback
But Philip Morris -- far away the category leader in 2001 with 51.5% market share according to Prudential Securities estimates -- has the luxury of market dominance its rivals do not.

"Philip Morris can pull back on some of these things because they are in such a dominant position. Everybody else has got to stretch out and push the envelope," said Mr. Campagnino.

That could explain why British American Tobacco's Brown & Williamson Tobacco Corp., in distant third place, plans to maintain its magazine ad expenditures this year, according to a company spokesman, and why No. 2 R.J. Reynolds Tobacco Holdings' R.J. Reynolds Tobacco Co.'s magazine activity seems status quo.

Although an RJR spokeswoman would not comment, publishers confirmed they have schedules and ads for RJR brands. "I think RJR's committed to [magazines] as the last mass media outlet," Mr. Campagnino said. "They're desperate for people to switch. They really need to make that marginal Marlboro smoker a Camel smoker."

Tobacco ad cutbacks in magazines have been accelerating over the years. In 1981, the cigarette category was the No. 1 revenue generator for magazines; today it's No. 21. Tobacco companies accounted for 2.3% of U.S. measured media spending in 1970, the last year of TV ads, and only 0.5% in 2000 -- and spending has plummeted since then.

Distancing from tobacco
The industry leader's shift stands to enhance public perception, a welcome benefit for Philip Morris Cos. as it prepares to distance itself from tobacco roots by renaming itself Altria.

"By not advertising, they may be doing better things for their public, corporate image and branding than by advertising and taking all the flak for doing it," said Robert Thompson, Syracuse University professor of media and pop culture. "The best kind of advertising may be no advertising."

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