Markets

The Logic Behind News Corp.'s Wall Street Journal Coupon Switch

By Jim Edwards

Updated on: August 14, 2010 / 12:00 PM EDT / MoneyWatch

News Corp. (NWS) has moved its obscure but lucrative supermarket coupon business from The New York Times to The Wall Street Journal in a move that will be closely scrutinized for anti-competitive issues by News' clients and rivals in the cutthroat coupon world. The deal is simple, but has a complicated set of unanswered questions circling round it: News will no longer supply coupon inserts to the NYT. That business will now be placed in the WSJ.

News owns an ad agency, News America Marketing, which controls a hefty chunk of the supermarket coupon business in the U.S., including the WSJ coupons. It just entered a deal with a rival agency, Valassis (VCI), and together the pair probably control more than 90 percent of all supermarket and grocery coupons in the country.

NAM's clients doubtless had some sharp questions about the WSJ move. WSJ readers have a higher household income than NYT readers; generally, poorer people use coupons more. Here's the breakdown:

Median household income:
Wall Street Journal: $128,453.
Sunday New York Times: $119,499

Second, the NYT has a larger weekend circulation (although the WSJ is growing quickly). So NAM has placed its coupons in front of a smaller audience that has less need of them. Obviously, News owns NAM and the WSJ, and this move will funnel extra ad revenue to News.

Why would NAM's clients agree to this? One explanation is that they believe the WSJ's weekend circ is now more than, or equivalent to, the Times, or that News is offering the WSJ coupons to advertisers at such low prices that it just makes sense.

But another possibility is that NAM is repeating a tactic it used to simultaneously dominate certain newspaper coupon and in-store supermarket advertising channels. In a state court trial that was settled for $500 million in January, it emerged that NAM told its clients they would get extremely cheap deals if they allowed NAM to handle both its newspaper coupons and its in-store supermarket advertising (those little shelf and shopping-cart ads you see at the grocery). If clients didn't take the deal and gave their newspaper business to rival Valassis, NAM jacked up its supermarket ad prices, the court heard. This leverage -- in which NAM used its dominance in one category to dominate another category -- so angered one NAM client, Sarah Lee, that an executive once wrote of NAM:

"Feels like they are raping us and they enjoy it--"

Thus Valassis and a third coupon provider, tiny Insignia Systems (ISIG), will closely scrutinize the WSJ deal and canvas NAM's clients to find out if they went along happily, or if they were made offers they couldn't refuse. NAM faces another trial on the supermarket coupon issue in December. The WSJ deal is not an issue in that trial.

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Image by Flickr user Kevin Dooley, CC.