|Photo: Hoag Levins|
|News Corp.'s News America, which has contracts to sell shelf ads, floor ads and instant-coupon machines at about 35,000 food, drug and mass merchandisers nationwide, had sales of about $1.1 billion last year.
The deals, offered by News Corp.’s News America unit, run as high as eight figures and have been bought by top package-goods marketers, including Procter & Gamble Co., Kimberly-Clark Corp., Johnson & Johnson, Unilever and General Mills. Some of the so-called category buyouts can effectively lock out competitors from in-store advertising for their duration—even if the marketer is not advertising at that time—and confer an edge in crucial retail territory described by marketers as the “moment of truth.”
The category-buyout system was developed under Paul V. Carlucci, the hard-charging CEO of News America who last year was tapped by Rupert Murdoch to also replace his son Lachlan as publisher of The New York Post.
How it works
Mr. Carlucci has become famous in part for allegedly trying to rally his News America sales force by showing a clip from a film “The Untouchables” in which Al Capone beats a man to death with a baseball bat. That anecdote is recounted in the introduction to a $4.5 billion antitrust lawsuit filed Jan. 18 against News America by Valassis.
So how do the deals work? Though retailers own the shelf and floor space, News America has contracts to sell shelf ads, floor ads and instant-coupon machines at about 35,000 food, drug and mass merchandisers nationwide. News America had sales of about $1.1 billion last year as part of Rupert Murdoch’s $24 billion News Corp. While News Corp. doesn’t break out the in-store business from the newspaper coupon inserts, the in-store business likely accounts for at least $300 million annually. Industry executives and financial reports indicate News America holds a roughly 90% market share of its in-store media categories.
Under the terms of the deals it has been selling, marketers pay News America for media and a minimum production expense for in-store ads across multiple four-week cycles whether or not they use the space or services, according to the documents. In weeks they choose not to use the space, competitors can be blocked from using it.
Essential details of documents, which include copies of signed retailer contracts, spreadsheets and several issues of an internal employee newsletter called the “News America Marketing Communications Bulletin” were confirmed by at least three marketers who had signed up with the program, and one who had been shut out by it.
Blocked by rival
One package-goods marketer competing with Unilever said he was told when he inquired about buying a shelf-sample dispenser program that the category had been sold out to his rival for a year for $1.8 million. But the marketer said he hadn’t been asked to bid on the category-exclusive deal beforehand and wasn’t informed of the full scope of Unilever’s buyouts across multiple categories.
According to the employee newsletters from News America for November and December, category-exclusive deals with Unilever covering all or most weeks of 2006 in hair care, deodorant and hand-and-body lotion total $14.6 million as part of an overall in-store relationship of $19 million for the year. The hand-and-body deal alone was worth $9 million, according to the documents.
Unilever declined to comment on the deals.
Not all marketers use the category buyouts to block rivals. P&G has full or partial buyout deals in several categories, including diapers, facial cleansers/moisturizers, dish soap and laundry detergent, according to a News America spreadsheet. But a P&G spokeswoman noted that the company has only opted for one-year deals vs. the two-year deals some others have used and that it notifies News America and allows it to resell ads during four-week cycles its brands don’t intend to use. A J&J spokesman said that to his knowledge, the company uses all the cycles it buys.
Koch Industries’ Georgia-Pacific Corp. has News America’s “shelf talker” ads and coupon machines locked up through the end of 2008 for paper towels. “We find in-store marketing is a valuable tool for us, because it really speaks to our consumers,” said a spokeswoman. She declined to comment, however, on whether G-P makes the space it controls available to rivals when it’s not being used.
It appears G-P’s exclusive helped News America recently sell a rival less-prime inventory. A Jan. 13 News America newsletter congratulates sales reps who landed a $430,000 shopping-cart ad program for Kimberly-Clark Corp.’s Viva paper towels, noting: “This is a breakthrough sale because Viva is locked out of the shelf by a competitive buyout so we convinced the brand to try [shopping cart ads].” A K-C spokesman declined to comment.
A spokesman for General Mills, which according to the documents has shelf ads and coupons locked up through early to mid 2007 for cereal, yogurt and salty snacks, also declined to comment.
Whether News America or package-goods companies could face antitrust problems over the buyouts is dubious, said one lawyer, who spoke on the condition of anonymity because his firm represents one or more of the marketers. “You could make an antitrust case,” he said, “but it would be a very weak case.”
Shelf coupons would be a key area of focus in such a case, because the exclusive deals could potentially restrict the frequency and amount of price-reduction deals for consumers at the shelf, he said. But a litigant would have to prove that shelf coupons are so unique they can’t be easily duplicated by other distribution methods—something he believes would be difficult at best.
“News America’s business practices work to benefit consumers and do not inhibit competition,” said Christopher Mixson, president, News America Marketing. “News America fairly competes by providing superior products at lower prices. This competition benefits our clients, retailers and consumers. We are gratified that our clients have sought to make larger buys in the face of numerous alternatives for their marketing dollars. We are proud so many companies find our products to be valuable and we are committed to providing them with the best possible service.”