Thursday, June 18, 2009

Valassis Presents Evidence of Bundling by News America Marketing

Jim Edwards of BNET news has posted several stories about the ongoing Michigan state court trial between Valassis and News America.

According to Edwards' June 16 story, News America's VP of Business Operations Tom Leprine admitted that News America bundled its in-store adverting with FSIs, charging consumer packaged goods manufacturers ("CPGs") higher prices for in-store advertising (where News holds a virtual monopoly over coupon, shelf, and floor ads) if they did not purchase their free-standing inserts ("FSIs") from News America. Some CPGs, such as Nestle, complained about News' America's "punitive pricing." As reported in a June 17 follow-up story, Mr. Leprine admitted that a number of CPGs agreed to pay millions in increased in-store pricing because of the bundling policy, including, for example, Sara Lee, S.C. Johnson, Novartis, and Reckitt Benckiser. Other CPGs agreed to place all their ads with News America to avoid the price increases (to the detriment of Valassis), though at least a few other CPGs refused to agree to News America's rates.

A former Sara Lee employee testified that she requested a proposal on in-store advertising, but was instead presented with a joint FSI / in-store bid that News refused to change, as Edwards reported on June 12. Representatives from Pepsi and Heinz also reportedly complained about News' monopoly on in-store to force them to purchase FSIs from News.

In the June 17 story, Edwards reported that News America's attorneys played a video of a sales speech in which News America Marketing CEO Paul Carlucci said that News Corp CEO Rupert Murdoch encouraged News America Marketing to "really go after [Valassis]." Carlucci also asserted that Valassis' loss of market share was caused by its executives' unwillingness to cut prices to match News because the Valassis' executives stock options gave them an incentive to increase short-term profits. According to News America's attorneys, Valassis' loss in market share was caused in part by their decision to raise prices in 2002, reported Edwards on June 13, not anticompetitive bundling.

Edwards coverage is limited, making it hard to tell what the likely outcome will be. On the other hand, it appears to be the only coverage available because of a ban on cameras at the trial.


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