News America's Emmel Testifies on Exclusivity Payments to Eckerd, Ahold, Harris Teeter

Robert Emmel, an account director turned whistleblower at News America Marketing, testified that the agency paid Eckerd $4.5 million to secure exclusive rights to place advertising in its stores. The deal prevented rival agency Insignia Systems from placing ads in the drugstore chain. News America also paid Ahold and Harris Teeter to prevent other agencies placing ads in their stores, Emmel said.

The testimony came in a Michigan state court trial in which rival agency Valassis is attempting to prove that News America created contracts that secured illegal monopolies on parts of the in-store advertising business. Emmel's testimony -- which came via video deposition -- has been long-awaited because he was the only witness employed by News America who is openly hostile to his former employer. Plus, his testimony in other cases has been highly entertaining.

News America probably lost money on the Eckerd deal, Emmel testified, because the agency was unable to place much business inside Eckerd:

Question: And to your knowledge the revenues that were gained relative to Eckerd did not equal the guarantee? Answer: To near certainty, a hundred percent of my knowledge, in the ongoing business with Eckerd I know for a fact that the revenue generated by News America came nowhere near the guarantee because I actually had an embarrassing sequence where I think a number of months had actually gone by that there were no placements from News America in the Price Pop program and I actually had to retrain Eckerd on what the program was and how to handle the pricing and what have you because so many months had gone by.

Emmel said the deal was done because Insignia had managed to sign up Rite-Aid, and the Rupert Murdoch-owned agency wanted to prevent the smaller agency from increasing its empire in drugstores:

I believe around the same time it was known that Rite-Aid was going to be going in the direction of Insignia, and I know that Eckerd was a great beneficiary of the fact that News America did not want to see 2600 Eckerd stores join whatever number the store count was at RiteAid at that time to give Insignia that type of critical mass.

Emmel also testified that News America paid supermarket chain Ahold $11-12,000 per store to secure exclusive ad placement rights, and block ads from Insignia and another agency, Floorgraphics:

Answer ... in the early part of 2003, and Ahold was a very savvy negotiator through their negotiating arm and had a great deal of input from their operating entities and they leveraged and News America capitulated to prevent both Floorgraphics and Insignia from doing business with them by coming in with a large uneconomically justified amount of money as a barrier to competition.
Question: What is your basis for your belief that the huge guarantees paid to Ahold were drive by the competition from Insignia and Floorgraphics? Answer: Well, I had a very good relationship with Dominic Porco who was the president going back a number of years even before I joined News America, so first and foremost, you know, he told me that. That was a key, key objective to Mr. Porco's to not let that happen.

Payment to secure an ad monopoly with a store was a repeat tactic at News America, Emmel said. The agency successfully persuaded Harris Teeter not to do a deal with another agency, Vestcom:

... News America actually increased their guaranteed offer to Harris Teeter, as I recall from memory, by 50,000 a year or $150,000 over a three-year term to ensure that Harris Teeter would not contract with Vestcom for the what I believe to be the Ad Tags program, and they would allow the broad shelf messaging exclusivity of News America to remain unchallenged ... my recollection was that Harris Teeter then agreed to accept the enhanced deal by $50,000 a year or $150,000 over the term to not pursue any consideration of the Vestcom Ad Tag program.

Emmel also alleged that News America published false statements to clients about rival ad agencies. It circulated information suggesting that Insignia's compliance rate with supermarket media buys was around 20 percent, when Emmel believed it was around 60 percent, he alleged. And News America claimed a field force of 10,000 employees, much higher than the real number, Emmel said.

Emmel also admitted that as he did not work in News America's finance department, he had no direct knowledge that payments were made to those supermarkets.

The trial continues.

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