In-Store War Heats Up Between News America and Dial, Heinz

Overcharged for Not-So-Indispensable Ad Products?

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Here's something you don't see every day: A lawsuit by marketers alleging that they got overcharged by being forced into bad deals, and a countersuit by a media vendor claiming its inventory isn't all that indispensable.

But those are among the issues as Henkel's Dial Corp. joins H.J. Heinz duking it out in court with News Corp.'s News America marketing unit. The lawsuit alleges that News America overcharged by using exclusive contracts with retailers and other illegal means to get a commanding 84% share of the in-store advertising market, then used that leverage to bundle contracts and hike rates in the more competitive newspaper-coupon business. In other words, to get instant-coupon machines in stores, marketers had to buy space in SmartSource newspaper inserts, the suits allege.

News America spent much of the past seven years in court fending off, and ultimately settling without admitting wrongdoing, lawsuits from competitors alleging it illegally monopolizes in-store marketing. News America in 2009 garnered in-store advertising revenue of $400 million, according to court documents, and has an estimated $1.1 billion in annual revenue overall, according to Nomura Securities. It paid more than $655 million to settle those suits from 2009 to 2011. Now Henkel and Heinz are seeking a piece of the action from alleged anti-competitive activity.

Dial originally sued News America in December in a Michigan federal court case later joined by Heinz. Then late last week, News America in U.S. District Court in New York countersued the two companies, which remain customers, seeking a declaratory judgment that its practices don't violate antitrust laws. It also seeks damages from Heinz for allegedly breaching its contract by not litigating issues in New York.

In the Michigan action, News America has filed an answer denying all wrongdoing and any violation of antitrust laws. Spokespeople for News America and Henkel declined to comment. A Heinz spokesman didn't return an email or call for comment by deadline.

The complaint from Dial and Heinz bears strong resemblance to litigation filed against News America several years ago by competitors Valassis, Insignia Systems and now-defunct Floorgraphics -- right down to the tale of former News America Chief Operating Officer Paul Carlucci showing his sales staff a scene from the movie "The Untouchables," in which Al Capone beats a rival to death with a baseball bat. The suits are from only two of more than 1,000 News America clients. And neither Henkel nor Heinz falls among the top 100 U.S. advertisers, according to the Advertising Age DataCenter. Through the first 11 months of 2012, Henkel spent $30 million and Heinz $46 million on all brands in measured media, according to Kantar Media.

But if Henkel and Heinz win or get settlements, how many more clients may follow? And will all CPG clients get new bargaining leverage from the threat to sue? A News America spokeswoman declined to comment on those questions or on the litigation.

But in its answer, News America seems to argue that its products aren't so unique or indispensable. "From the perspective of CPGs, advertising and promotional products such as [in-store marketing] services and [free-standing insert] coupons are reasonably interchangeable with each other and many other forms of advertising and promotion," News America said in its complaint, adding that the vast majority of in-store marketing is done directly by CPGs through retailers.

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