Last year, a bunch of News Corp’s biggest advertisers went to war against Rupert Murdoch’s company, filing a lawsuit alleging they had been overcharged for advertising. Companies such as Heinz, Dial, Foster Poultry, and Smithfield Foods claim that News Corp’s alleged monopoly on certain types of supermarket advertising led to them being overcharged for a period of 15 years.
The case is most famous for a memo written by an executive at the cake company Sara Lee, who said that placing advertising with News “feels like they are raping us and they enjoy it.”
News denies the allegations.
Today, a New York federal court heard arguments in that case.
Buried in the legal filings is a curious fact: News Corp’s gross profit margins on advertising placed with its News America Marketing (NAM) unit were between 81% and 86%. NAM handles in-store advertising in US supermarkets and coupons for groceries. It’s one of Rupert Murdoch’s under-the-radar businesses. It earns about $US400 million in revenues per year. That would imply that annual gross margins at NAM are somewhere approaching $US344 million. News Corp does not otherwise break out the margins for NAM in its SEC filings.
Business Insider contacted News for comment but did not immediately hear back.
It’s not clear whether those 80%-plus margins are common or excessive. But the document in which they are cited claims that News had the power to raise advertising prices by 54% without losing any business — an indicator of how powerful NAM’s hold on the supermarket business is.
In the case, the advertisers claim that for about 15 years, NAM has controlled up to 80% of the supermarket advertising business. It allegedly used that power to write restrictive contracts that distorted the market and kept advertising prices artificially high. News previously paid out $US656 million in settlements to competing companies who lost business to News because of its alleged antitrust activity. News has also been sued by a pension fund alleging that NAM’s legal liabilities from its alleged monopolistic behaviour have reduced the value of the NWS stock it held.
From the legal filings in the case, it looks as if proprietary information about NAM’s margins was supposed to have been redacted behind black bars. Everywhere else in the document that info has been blocked out. Except for this bit, which revolves around a discussion of the findings of an expert who calculated that News’ profit margins were excessive:
News’ rebuttal is that the expert, Jeff MacKie-Mason, dean of the School of Information at the University of Michigan, has improperly compared NAM’s business to other companies, and that the margin calculation is thus unfair:
However, News’ filing is redacted so that both the average margins earned by other companies and the margin earned by NAM are hidden.
A ruling in the case is not expected for months.