Advisory opinion letter to Mr. Helm

Dear Mr. Helm:

On April 28, 1970, I filed with you, on behalf of the above reference Company, a request for an Advisory Opinion with respect to the business of the Company and its status under the Clayton Act, as amended by the Robinson-Patman Act.

As supplemental information to that request the Company has asked me to advise you that the magazine to be published by the Company will be made available to all retail grocery stores in the New York metropolitan area on the basis of one magazine per $1,000 in annual retail sales. It is our understanding that the practice among distributors in the industry is not to break down a case of any product for particular retailers. Since the Company's magazines will be distributed in cases of not less than 250 magazines per case, it is likely that retailers with less than $250,000 in annual sales will be unable to obtain the magazines from their distributors. For these retailers the Company will establish central distribution points from which magazines and appropriate allowances can be obtained by those retailers desiring to participate in the Company’s program.

As stated in our letter of April 28, 1970, the Company will be unable to make this program available to all retailers in the New York metropolitan area until the beginning of the third quarter of its operation *See 78 I.T.C. for Opinion Letter of March 22, 1971, on revised plan submitted in letter of request dated January 15, 1971.

because of the scarcity of independent printing facilities in this area. Therefore, the commitment expressed in the preceding paragraph is qualified by this restriction.

Should you desire any further information or have any other questions, please feel free to call Mr. Arbour or myself at your convenience,

Very truly yours,
Joseph J. McCann, Jr.
Letter of Request
April 28, 1970
Dr. Mr. Helm:

Tam counsel to a number of individuals who have formed a corporation under the name of In-Store Publications, Inc. to engage principally in the business of publishing a weekly magazine and in distrib-_ uting it free to the consuming public through the distribution channels of large retail businesses, with the only source of income to the company coming from advertising revenues. The individuals promoting the business of the company have become concerned that the ‘distribution of such a magazine may present possible violations of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act. As you suggested in our telephone conversation, I am writing to request an Advisory Opinion with respect to the business of the company and its status under the Clayton Act. _ The concept for the company (“the Company”) is to take advantage of the vast patronage of several consumer-oriented retail establishments, selling the same or unrelated products, for the distribution of a popwar, free magazine and to use this large potential audience to encourage consumer industries to advertise regularly and extensively in the magazine. The founders of the Company believe that such a concept on such a scale is novel in the publishing industry. Since the Company will receive no money for the distribution of the magazine, the success of the concept will depend entirely upon the consistency and size of advertising. The Company believes that its ability to insure an advertiser of a large distribution of the magazine will encourage potential advertisers to advertise in the magazine. The Company’s plan of operation, therefore, is initially to negotiate and enter into a series of agreements with wholesale distributors of grocery products and retail sellers of grocery products that act as their own wholesalers in the New York metropolitan area for the distribution of a television weekly magazine free to the consuming public. Lf the Company’s business is successful, it will eventually expand its program to a national distribution. The Company has selected the retail grocery business and the New York metropolitan area as its initial market because it believes that this would be the area of its largest and ADVISORY OPINIONS WITH REQUESTS THEREFOR 1757 most consistent distribution. The agreements would contemplate the publishing and distributing by the Company to the wholesalers, at no charge, of a weekly television magazine containing a complete seven day television schedule, syndicated columns and feature articles and advertisements. Magazines would be distributed on the basis of one magazine per $1000 of annual sales in the New York metropolitan area. This figure has been arrived at by allocating the estimated saturation point of four million magazines for the approximately eight million television homes in the New York metropolitan area among the total annual grocery sales in this area.

The magazine for all customers of the Company would be ‘basically the same. However, because a wider, more economic distribution to the consuming public can be achieved through large volume retail customers, the Company intends to also offer those retail customers whose annual retail sales in the New York metropolitan area are in excess of $75,000,000 their own individually stylized cover that identify the magazine as that of the customer (such as “A&P’s T.V. Plus”), up to one-half of the contents page for advertisements or information that such customer might wish to insert, one full four-color page advertisement for one of the customer's private brand products, and the option of using four full center-fold sides in black and white for advertisements or other information that the customer may wish to insert or of receiving $.0025 per copy of each issue of the magazine distributed by such customer. For retail customers with less than $75,000,000 but more than $50,000,000 in annual retail sales, the Company will provide a standard cover for the magazine with such customer’s name stamped on it, will provide such customer with the option of using the four centerfold sides or of receiving $.0025 per copy distributed, and, in lieu of the one-half of the contents page and the full page in color provided to retail customers with sales in excess of $75,000,000, $.000625 per copy distributed. Retail customers with less than $50,000,060 in annual retail sales will receive a standard cover and magazine and, in lieu of’the pages provided the larger retailers, $.003125 for each copy distributed. Wholesalers who distribute magazines and appropriate allowances for the Company to independent retailers and who secure their agreements to distribute the magazines to the consuming public will receive $.0005 per copy distributed to the independent retail customers. In addition, if a wholesaler distributing to independent retailers shall have annual sales in the New York metropolitan area to such retailers in excess of $50,000,000, after deducting the sales of those retailers with sales in excess of $50,000,000, he shall be entitled to use the four center sides of the magazines to be distributed to independents with less than $50,000,000 or receive $.0025 per copy distributed to such retailers. If such sales to such independents with less than $50,000,000 in annual

467—-207—T3- 132
as
1758 FEDERAL TRADE COMMISSION DECISIONS

sales in the New York metropolitan area are in excess of $75,000,000, he shall also be entitled to use the one four-color page for an advertisement of one of his private brand labels in each of the copies to be distributed to such retailers or to receive $.000625 for each such copy distributed. The stated annual sales figures have been determined on the basis of what approximate volume of magazines published in one format it becomes economically possible for the Company to change the format. The expense and time involved in changing pages within a particular issue mitigates against granting each customer certain pages for his exclusive use. In analyzing this cost, as against the possible revenues that might be able to be derived from these pages, the Company has determined that a run of 50,000 magazines is the approximate point at which certain pages can be stylized to suit a particular customer. At about 75,000 magazines, additional pages can be changed. With the exceptional of the alternatives stated above, a customer of the Company will have no control over the content or stylization of the magazine. In return for publishing the magazine and distributing it to the wholesaler, the Company will obtain the wholesaler’s agreement. to (a) distribute copies of each issue free to his retail customers on the basis of one magazine per $1000 of annual sales, (b) distribute to or credit in an appropriate manner his retail customers any allowances that may be due them under the Company’s plan, (c) obtain the agreement of his retail customers to distribute one copy of each issue free to each of their customers, and (d) certify to the Company distribution figures of the magazine by the retailers and their appropriate allowances.

Based on its investigation of independent printing facilities available in the New York metropolitan area, the Company feels that the maximum possible distribution of its magazine for the first quarter of operation will be 2,000,000 copies per week. The Company, therefore, will not be able in the first quarter to offer the magazine to the estimated 4 million saturation point. It anticipates, however, that by the third quarter of its operation, it will be able to so extend the offer. For the first quarter (which is expected to commence with the beginning of the television season in September of 1970), the Company has offered the magazine to six grocery chains who are also their own wholesalers and to one grocery chain that acts as wholesaler for its own chain of retail stores and for a number of independent stores. The six chains that act as wholesalers only for themselves, will receive, if they accept the Company’s offer, the additional benefits described above that accrue to a customer with annual sales in the New York metropolitan area in excess of $75,000,000. The Company wil] treat the other chain as two distributors. The magazine with the individually stylized cover, etc. will be published for the distributor’s own stores, since these stores have AVYVYLOUINE VELINIVUIND Wilt RWURSLD LENE PO Léio”v annual retail sales in excess of $75,000,000, while the independent stores purchasing from the distributor will receive the standard cover magazine and the allowances that accrue to retail stores with less than $50,000,000 annual sales. oo These particular distributors were selected because it was felt that they would present the easiest vehicle for introducing the magazine to a cross section of retail grocery stores and because of their reputation for flexibility in introducing new ideas.

While agreements are being negotiated with the grocery industry, the Company intends to offer advertising space in the magazine to consumer industries. The rate to be charged for space will be the same for all advertisers and will be comparable to that at which space is sold in magazines having a national distribution. It is expected that advertisers will consist not only of those whose products may be sold through food stores, but also of those whose products are not sold through grocer stores. Also, though the basic inagazine may appear in a number of different grocery stores, it is possible that an advertiser’s products may be sold exclusively through only one of the many grocery stores distributing the magazine. Except for their advertisements, advertisers will have no control over the contents or stylization of the magazine.

A proposed form of Agreement, a copy of which is enclosed for your assistance, has been submited to those wholesalers in the New York metrolitan area that have their own retail stores and have annual sales in the New York metropolitan area in excess of $75,000,000. It is expected that serious negotiations will begin with these companies shortly. Discussions have also been commenced with a number of potential advertisers. These later discussions have and will involve only Company personnel and at no time will a distributor of the magazines be permitted to take part in these negotiations. Potential advertisers will be informed, however, who the proposed distributors of the magazine will be. The Company respectfully submits that its proposed plan of operation, as stated above, will not place it in danger of violating the provisions of Section 2 of the Clayton Act, as amended. Representatives of the Company will be pleased to discuss its proposed business with you or your representatives at your conveniences and are, of course, prepared to submit such further information as you may request. Should you have any questions, please call collect the undersigned at 212-844-8900 or John G. Arbour, President of the Company, at

203-227-7291.
Very truly yours,
Joseph J. McCann, Jr.

Léiivuu PIF Or esp SWsU OMEN was CUSUMEL CUAL BLT STO ePRere SEES ULOHCCF Sure Le)