News America Exec Testifies Unilever, Conagra and Kraft Got Higher Prices for Not Taking Bundled Ad Deals

Last Updated Jun 16, 2009 11:06 AM EDT

News America Marketing vp/business operations Tom Leprine testified that companies which did not accept its bundled deals on in-store supermarket ads and newspaper coupons got higher prices. The testimony came in a Michigan state court trial in which newspaper coupon agency Valassis accuses News America of using its supermarket ad monopoly to require advertisers to also use News America newspaper coupons, thus forcing Valassis out of the market.

Murdoch: Not the boss of all bosses Leprine was the first witness called by Valassis to make its case. (BNET's coverage of the trial is about 10 days old due to this.) At first, Valassis lawyer Greg Curtner attempted to establish that News America execs refer to their owner, Rupert Murdoch, as the "boss of all bosses," a reference to the mafia. That didn't work:
Q. And Mr. [Paul] Carlucci [News America's CEO] reports to Mr. Rupert Murdoch, is that right? A. I believe that's accurate. Q. And Mr. Murdoch is the boss of all bosses, right? MR. KLEIN: Objection. THE COURT: Rephrase. I assume that's the objection? MR. KLEIN: Yes, Your Honor. Q. He is the senior of all bosses? A. He is the chairman of the corporation. Q. Is he sometimes referred to as the term I just used? A. Not that I have heard.
In hours of testimony focused on the arcana of supermarket and coupon pricing, Curtner attempted to get Leprine to admit that clients were punished with higher prices if they gave any of their coupon business to Valassis or if they failed to take a bundled deal on News America's newspaper coupons and in-store supermarket ads, where News America has a virtual monopoly. On at least two occasions in the first day of his testimony, Leprine admitted that News America used its coupons and supermarket prices as leverage to make sure clients took both, because taking one alone would be too expensive:
Q:... you were offering to them in-store benefits in exchange for getting more and then all of their FSI ["free-standing insert" coupons] business, correct? A. That's correct.

... Q. Mr. Leprine, leverage is using in-store power to gain advantage in the FSI business, isn't that right? A. Right, and the opposite is true as well. Using FSI to gain in-store.
Unilever, for instance, saw its bills go up 3 to 5 percent because it did not take the "free-standing insert" coupon deal:
Q. So basically because Unilever gave its FSI business to Valassis, you increased their in-store rates 3 to 5 percent? A. Because we no longer had the FSI business. ... Q. And, in fact, Unilever continued to run in-store programs at higher rates, did it not? A. At lightly 3 to 5 percent higher, correct.
Under further questioning, Leprine admitted that clients such as Sara Lee, S.C. Johnson, Hormel, and General Mills were threatened with price increases if they did not take News America's newspaper coupons in addition to its supermarkets. Prices for Conagra went up 27 percent, and prices for Kraft went up 20 percent, Leprine admitted. Here's the specific testimony on Sara Lee, which came regarding an email from News America president Chris Mixson:
Q. This is Mr. Mixson speaking saying: We don't want to be perceived as being punitive, however, Sara Lee certainly cannot expect to reap the benefits of single source pricing when it was their decision to give the lion's share of the business away to a competitor, hence avoiding the single source opportunity. Correct? A. That's correct. ... If the volume of the FSI goes away, it could no longer discount in-store rates at the same levels.
The court also heard the text of memos regarding Nestle's dislike of the deal terms:
Q. It came to your attention that the man who ran the purchasing of FSI at Nestle did not like News America's tactics, isn't that right? A. I don't remember hearing it. Q. So: Nestle team presented in-store pricing to Glen, Jason, and Tim. Glen was very disappointed that the in-store rates were not lower and went into a tirade against NAM's alleged "punitive pricing." Matt told Glen he would relay his comments to management and let him know NAM's response. MR. KLEIN: Your Honor, objection to hearsay.
Leprine did not answer further questions about that memo. Valassis' intent is to show that News America's overall strategy was to execute a plan by Carlucci "to push Valassis to what we call the brink of utter desperation."

More to come.

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