Monday, August 15, 2005

Cigarette Advertising and Promotion Expenditures Rise to All-Time High; Anti-Smoking Groups Still Calling for More Money

The Federal Trade Commission (FTC) last week issued its report on cigarette advertising and promotional expenditures for the year 2003. The report revealed that cigarette marketing expenditures rose by 21.5% from 2002 to 2003, reaching a level of $15.2 billion, the highest total ever reported to the FTC. The largest single category of marketing expenditures was price promotions (paid to wholesalers or retailers to allow them to reduce the sale price of cigarettes to consumers), which accounted for 71.4% of expenditures (at $10.8 billion).

When considered together with spending for promotional allowances (which pay retailers to stock and display cigarette brands), coupons, and retail-value-added (e.g. buy two packs, get one free) promotions, it is clear that the overwhelming bulk of cigarette marketing expenditures was related to efforts to encourage retailers to carry and display cigarette brands and to keep the prices of cigarette brands down. These retail or price-related promotions totaled 92.9% of cigarette marketing expenditures for 2003.

Traditional advertising expenditures (i.e., newspaper, magazine, outdoor, and point-of-sale advertising) accounted for just 2.4% of overall marketing spending, although still amounting to $353 million, down from $418 million and 3.4% of all marketing expenditures in 2002.

In response, the Campaign for Tobacco-Free Kids called for passage of the proposed FDA tobacco legislation, which it has claimed will "curtail" cigarette marketing to children, and it continues its call for the DOJ to "strengthen" its case by increasing the proposed smoking cessation remedy from $10 billion to $130 billion.

The Rest of the Story

This report demonstrates the absurdity of the D.C. health groups' (Tobacco-Free Kids, ACS, ALA, and AHA) claims that the FDA legislation is going to curtail the marketing of cigarettes to children and therefore save lives by reducing tobacco use.

The primary lesson that anyone reading this report should receive is that marketing is a multi-dimensional strategy that encompasses a broad spectrum of activities aimed at a variety of outlets. Traditional advertising is just one part of this spectrum. When one aspect of the marketing toolbox is limited, the industry can simply shift its resources into other areas. And since limits on its overall spending cannot be imposed, the industry has almost unlimited potential to devise a marketing strategy that will be successful in promoting its products, including to youths.

There is an intervention that could effectively curtail the industry's ability to market to youths. That intervention is a comprehensive ban on cigarette advertising and promotion. But such a ban would clearly violate the First Amendment, at least as it was interpreted in Lorillard v. Reilly.

Thus, there is simply nothing that FDA could do that is both consistent with the First Amendment and broad enough to effectively curtail cigarette marketing to youths. The D.C. health groups' claim that this legislation will curtail cigarette marketing to kids and therefore reduce smoking and save lives is completely unfounded, and should be rejected outright by public health organizations and practitioners.

But the most unfortunate aspect of this story is not the absurdity of the claims that the major anti-smoking organizations are making. Rather, it is the fact that despite their moaning about the fact that cigarette marketing has reached an all-time high, they have failed to take any serious steps to encourage DOJ to address this marketing in its proposed remedies. Instead, these groups continue to clamor about the irrelevant loss of $120 billion in funds that would never see the light of day anyway.

Rather than putting their focus on the one area where effective DOJ remedies could actually address both the legal issues in the case and the protection of the public's health, the D.C. health groups have chosen instead to whine about the money.

The rest of the story is not just about how the cigarette companies have reached an all-time high in their marketing expenditures. It is about how the major anti-smoking groups are making completely unfounded claims on what the FDA legislation would do to curtail cigarette marketing to kids in their zeal to see something accomplished (see tomorrow's post for more on this mentality).

It is also about how the D.C. health groups are so blinded by the desire for monetary remedies that they themselves fail to see the most appropriate and logical remedy available by which they could address the very problem that they bemoan to no end, if they only could stop for long enough to set aside their sights on the money.


Bill Godshall said...

Yes, it appears that CTFK and other health organizations are more interested in enacting tobacco regulatory legislation that protects Philip Morris, than in attaining fair and effective cigarette marketing restrictions and adequate consumer warnings via the US DOJ lawsuit.

While I think that wisely drafted cigarette marketing regulatory legisaltion could survive first amendment challenges, the US DOJ lawsuit presents a golden opportunity to quickly attain even more effective cigarette marketing restrictions and consumer warnings.

While a desire to help more smokers quit may explain CTFK's decision to urge the US DOJ to request a cessation program remedy (that violates the DC Court of Appeals ruling), that doesn't explain why CTFK chose to NOT advocate effective cigarette marketing and warning remedies
(that are consistent with the Court of Appeals ruling).

The only logical explanation for this discrepency is that effective cigarette marketing and warning remedies attained via a DOJ settlement or verdict would further reduce the already dwindling chances that US Congress would enact the pending FDA legislation.

This could be an even more devastating strategic blunder (for public health and civil justice) by CTFK than in 1997 and 1998 when it unsuccessfully lobbied Congress to enact legislation to protect cigarette companies from lawsuits.

Cantiloper said...

Mike Siegel notes that Antitobacco interests might be better served if Antismoking Lobby groups would only "stop for long enough to set aside their sights on the money."

Mike, remember that Antismokers have many different motivations, but one of the strongest for some of the more powerful ones is simply Greed. Yes, they want to stop smoking, but they want to be well paid while doing it.

Bill Godshall let stand without correction or amendment an earlier post of mine apologising to him for my assumption that ever had any monetary concerns that could represent a conflict of interest in his position. I recently received an email however indicating that he once got "fired" from a position at the American Cancer Society.

Now while groups like SmokeFree Pennsylvania may not pay their executive staff, it is hard to believe that the ACS would "fire" someone from an unpaid position. Of course my information could be wrong. The fact that Mr. Godshall let my previous apology stand as was despite addressing issues immediately below it would indicate that I am indeed incorrect.

Not all are as pure as he however... many of the folks in the Antismoking Crusade ARE getting well paid by money stolen from smokers and if that money dries up they'll move on to other things instead. Note a passage from page 166 of my book:

"Few people, however, make the automatic leap to the realization that a good bit of the power and money that keeps workers, lawyers, and high-salaried CEOs employed at Crusading organizations flows directly from the perceived impact of and contributions raised by such advertising: it is not as altruistic as it appears at first glance. Indeed, when some funding cuts for New Jersey’s Antismoking efforts were being considered recently, Paul Wallner of the Medical Society of New Jersey said “Everything stops. There is no money.” despite the fact that NJ BREATHES (a local Crusading group) was still slated to get $14 million for its activities in 2002 (Ralph Siegel. Associated Press 01/08/02).

When fourteen million dollars is referred to as “no money” there is clearly something very, very wrong."

And given the present issues in the news, I think we'd be in agreement that there's something also very very wrong when one of the main forces in the RICO case seems to be the groups that are hoping to squeeze billions of dollars out of it for themselves.

Michael J. McFadden
Author of Dissecting Antismokers' Brains

Anonymous said...


I think you are overlooking something here. Tobacco marketing is already regulated by the Federal Trade Commission via Congressional mandate.

Indeed there are already warnings on every pack saying the product can kill you. There are complete bans on all electronic advertising (ie radio, TV, internet), and with the MSA in place billboard ads are gone too. I suppose that's still not enough for the diehard tobacco haters, people who even want cigarettes to disappear from movies and books, but apart from that, one thing remains:

The Department of Justice or the various health groups can ask up and down until they are blue in the face for Judge Kessler to enact complex tobacco marketing restrictions to prevent this and that RICO violation.

The fact is, though, that Kessler doesn't have the authority to regulate the marketing of tobacco products when that sphere is already regulated by Congress. She has already said at trial that she is highly reluctant to "go there", and for good reason. . .by doing that she would be standing in the shoes of Congress. She can't arbitrarily set national tobacco marketing policy just because this case ended up in her lap! She simply doesn't have that sort of legislative authority, and if she were foolish enough to try it (I quite suspect she isn't) she'd get smacked by whatever appellate court panel was amused enough to draw that appeal.

So while its fun to watch the anti-smoking groups and the DOJ posture and wax eloquent about this and that marketing restriction that they want, the reality is that they probably aren't going to get any of it. Certainly none of it complies with the DCCA case law on the nature of available civil remedies under RICO 1964(a) which is the controlling rule in this case.

The one thing that the gov't *could* get in this case. . .namely injunctive relief against *specific* tobacco violations (ie if you do "that" again, we'll slap you silly with a $100 millioni fine) is exactly the thing they did NOT ask for!