RJR decision causes precedent concerns

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A California court fined R.J. Reynolds Tobacco Co. $20 million last week for targeting youth in its magazine advertising-a small price for the $8.6 billion company to pay. But the impact could be far more costly, opening the door to further suits and causing ad groups to warn of broad dangers to marketers' First Amendment rights.

"It's obviously of concern to the tobacco industry, but it may be of concern if the case is used in other settings," said Dan Jaffe, exec VP of the Association of National Advertisers. "There is a potential that it may create a precedent that would be used outside the industry" for marketers of products such as movies, beer or videogames.

The remote prospect that RJR-and perhaps rivals-may trim magazine spending as a result of the judge's decision that its print buys reached too many young people is nonetheless concerning beleaguered publishers who have already weathered the brunt of the tobacco pullback. Magazines, one of few mass media still available to Big Tobacco, have decreased their reliance on the cigarette category, which has shifted its focus to price promotions and retail incentives. Tobacco, magazines' No. 1 revenue-generator in 1981, plummeted to No. 21 by 2001 as cigarette magazine ad spending dropped 39% last year to $237.4 million, according to Taylor Nelson Sofres' CMR.

So far this year, magazine ads for smokes have been slightly up in the first four months to $63.7 million, even though Philip Morris USA did not place a single cigarette ad in magazines until March weeklies and April monthlies, according to the company. The uptick in magazine spending in January through April 2002 suggests its competitors, including RJR, Brown & Williamson Tobacco Corp. and Lorillard Tobacco Co., did not follow the giant's lead when it made a "business decision" earlier this year to decrease 2002 magazine ad spending (AA, Feb. 4).

`Doesn't bode well'

Although many publishers had already felt some pullback from RJR, they're not pleased with the news. "R.J. Reynolds is not advertising very much with us right now," said Kent Brownridge, general manager of Wenner Media, publisher of Us Weekly, Men's Journal and Rolling Stone. An RJR spokeswoman said the company has already pulled out of titles including Rolling Stone, Conde Nast's Allure, Miller Publishing's Spin and Vibe, and Hearst Corp. and Walt Disney Co.'s ESPN the Magazine because youth-readership numbers were too high.

"It doesn't sound like it bodes well for the future of tobacco advertising," said one publisher at a top consumer title, adding that the move comes when ad-recession-wracked titles can scarcely afford it. "Our [tobacco] business is slightly up this year," the executive continued, "but it would still hurt if it went away. We are still scrambling for any page."

Although most observers believe RJR's appeal of last week's ruling will reverse the decision, the precedent set by San Diego Supreme Court Judge Ronald Prager could open the door for other state suits.

"We are just celebrating," said Vermont Attorney General William Sorrell, head of the tobacco committee of the National Association of Attorneys General. He said staff from other states helped California in the suit, but how to proceed would likely be discussed during the NAAG's regular meeting next week in Pennsylvania.

Judge Prager ruled that RJR's policy indirectly targets kids; although he did not suggest a new policy, he broadly ordered RJR to adopt "reasonable measures" to reduce youth exposure to cigarette ads. The $206 billion 1998 Master Settlement Agreement does not specify appropriate magazine-readership levels, yet attorneys general seem to be satisfied with the 15% youth-readership limit adhered to by RJR's rivals.

RJR has no plans to alter its current policy, which limits cigarette advertising to those titles with no more than 25% youth readership-based on Simmons and MRI data-or a median age of 23 when audience measures are not available, the spokeswoman said.

"It is important to realize that Reynolds is a No. 2 company that has been losing market share, and by that nature they need to be more aggressive in their promotional tactics, because the status quo is not their friend," said David Adelman, analyst at Morgan Stanley Dean Witter.

Yet at least one industry watcher believes RJR may voluntarily alter its policy to avoid other suits. "I think RJR might be fighting something that's not worth fighting for," said Rob Campagnino, a tobacco analyst at Prudential Securities.

RJR, unlike Philip Morris, did not reduce magazine ad spending this year. "Our spending varies year to year depending on the needs of the brands, but we have not made a unilateral pronouncement," the RJR spokeswoman said. "If for no other reason than sheer principle," she added, "we want the ability to retain magazine advertising, provided that those magazines are predominantly adult-focused."

Most observers think the ruling will not be upheld. Still, ANA's Mr. Jaffe said the court's view that targeting isn't determined by whether a marketer is aiming to reach youth is "dangerous." He said, "This may be used by regulators in the future to look at peoples' media plans and say what has to be done."

Dick O'Brien, exec VP of the American Association of Advertising Agencies, said, "This should make us all real nervous that a court has seen to penalize an advertiser for exceeding reach and frequency levels in selected titles," adding, "The court has...become the de facto media planners for these products."

contributing: jon fine

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