Ad Sales Plan Wins Approval Of Justice Dept. p.

By: Debra Gersh Hernandez Newspaper Association of America plan to sell national ads in daily and weekly newspapers will not be challenged sp.

THE JUSTICE DEPARTMENT will not challenge a plan by the Newspaper Association of America to sell national advertising in weekly and daily newspapers.
The department's antitrust division, which reviewed the proposal, found that the NAA's National Newspaper Network would be a new service that individual newspapers alone could not offer.
The Justice Department's opinion came in reply to an NAA business review request, a common procedure in which a business submits a proposal to the antitrust division and receives a reply about whether the action will be challenged.
"The essential thrust of the proposed NAA program is to respond to advertiser complaints on cost and cumbersomeness by empowering an industry-sponsored joint venture to offer advertisers space in a network of papers at a single, competitive price to be determined by the joint venture," explained NAA attorney William Lifland of Cahill Gordon & Reindel in his letter to the Justice Department.
Participation in NNN would not be limited to NAA members, nor would participants be bound by exclusivity. They would be free to solicit ads directly, through rep firms or even through other networks.
NNN also will not solicit ads for individual newspapers or markets and its role would be limited to national advertising, with advertisers selecting the participating newspapers in which they want to run. The program will feature a one order/one bill system.
Potential ad categories targeted include toiletries, food products, medical products, household supplies, alcoholic beverages and automotive manufacturers. Manufacturers of products in these categories "devote more than 90% of their national advertising dollars to other media, mostly television," Lifland noted.
Prices will be set by the NNN executive sales director, although papers would retain the right to set a minimum price. That figure would remain confidential.
The program is designed as "a limited-life demonstration effort," Lifland said. "If successful, it is expected to attract newspapers and others to continue some form of national network selling and pricing for advertisers."
NNN is to obtain a three-year commitment from each paper, and the commitment may be extended for up to three more years.
Papers' compensation will be based on a formula-determined share of ad sales revenues minus expenses. The formula likely will be based on circulation. Fees will be charged for expenses not covered by sales.
"After careful consideration of the information you have provided, supplemented by our independent inquiries, the Department of Justice has determined that it has no present intention to challenge the proposed activities of NNN on antitrust grounds," responded acting Assistant Attorney General Robert Litan, who is in charge of the antitrust division.
"While the department would be concerned if the effect of the proposed venture would be to increase the likelihood that NNN or any of its members could successfully coordinate their actions resulting in higher prices charged to advertisers, the department has concluded that the proposed venture is unlikely to have such effects," Litan added.
"NNN's price-setting function is reasonably ancillary to its ability to offer advertisers the opportunity to customize their messages for nationwide or specific regional audiences," he continued. "Also, NNN's central sales and billing services will enable national advertisers efficiently to deliver the same message through newspapers in as many local markets as they choose.
"This is a new service that no individual newspaper acting unilaterally can offer to advertisers. NNN may, therefore, have the pro-competitive benefit of enabling newspapers better to compete with other media for national advertising."
Other factors in the department's decision included NNN safeguards "against unnecessary coordination by competing newspapers through keeping individual papers' rate information confidential, the non-exclusive contracts and the fact that targeted industries spend less than 10% of their advertising dollars on newspapers, indicating that they have ample alterna- tives to newspapers and that NNN would not likely be able to exercise market power."
Litan did, however, emphasize that this opinion applied only to the current situation.
If the department finds that the project has an anti-competitive purpose or effect, it reserves the right to take action.
"Needless to say, we're thrilled," said Nicholas Cannistraro Jr., NAA chief marketing officer and senior vice president of marketing.
"Our outside counsel, who had managed this whole process, obviously did a good job because our request was tightly drawn and quite focused. That was their doing," he explained.
The next step is to hire an executive sales director for the project, who in turn will hire a staff of 11 to 12 people, about five of whom will be in sales, Cannistraro said, adding that the director would help set the specific sales and marketing strategy.
"We're anxious to get started in the hiring process, yet we didn't want to jump the gun prior to Justice's decision," he said.
"Not the least of all, it would be unfair" to hire someone without knowing that the plan would be approved, he explained.
Cannistraro said a director should be hired within the next six months but likely sooner.
There already are a number of potential candidates, he added.
NAA also can begin working on the specifics for newspaper participation as well as finalizing the funding formula, he said.
Although the plan calls for a three-year start with the option of renewing for another three years, Cannistraro said, "The notion of getting it up and running and turning it over to another entity is something we have discussed. How we'll do that when the time comes is an open question.
"There is a general feeling that over the long term, having the association in the sales business is probably something we ought not to be doing."
Cannistraro, who has been meeting with representatives of the Newspaper Advertising Sales Association, said the rep firms have been doing a good job of handling established business. He sees their potential role in this project as daily servicing accounts ? as long as a single entry point to the medium is maintained.
"If we got an account up to speed and developed, an account that had not been using newspapers, it seems to me rather than maintaining that account, our little NNN operation, which is not geared to the day-to-day care and feeding of an account, would want to turn that over to the rep firms, both independent and captive," he said.
With only five salespeople and one active boss, Cannistraro pointed out, "There are certain limitations to how many accounts we can handle. Getting the business, while not trivial, getting the business and keeping the business and delivering what the customer wants is still the big issue."
While some requests, such as day of the week and section of the paper, have not been too complex, Cannistraro noted, the industry's track record in granting these requests and more difficult ones has not been terrific.
"We're eager to get going," he said. "We have been doing ad hoc versions of this sort of thing ? team selling, the Future of Advertising, etc. that demonstrated to us that this is the right strategy.
"Now, for the first time, we have this mechanism to deal with the rate question and get rates to be competitive as well."