Byline Investigates: Murdoch, Mobsters and News America Marketing

22 September 2017

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WE’RE in a lavish dining room in mob-controlled 1920s Chicago. Al Capone is stalking around a table of tuxedo-clad gangsters, monologuing on the danger of disunity. He is swinging a baseball bat.

Without warning, he staves in the head of one mobster – a traitor with an eye on his crown. Blood pools across the white tablecloth. His cohorts look on, grimly. The message is clear: loyalty is everything; enemies die – and they don’t die well.

“I have looked at the evidence and it’s clear to me that Mr Rupert Murdoch is aware of what is going on, on a day to day basis, in his businesses” ~ Valassis lawyer Greg Curtner

In fact the scene is one from the 1987 movie The Untouchables, in which Robert De Niro memorably portrays the infamous Scarface.

It was also, according to a lawsuit that cost Rupert Murdoch’s News America Marketing (NAM) $500m, used as a motivational tool to spur on sales staff in a dirty war to monopolise the US store adverts industry.

Leading from the front: Paul V. Carlucci addressing his staff

The finger on the play button allegedly belonged to Paul V. Carlucci, Murdoch’s ‘close confidant’ who not only grew NAM into a $1bn+ a year business – enjoying eye-watering 28% gross profit margins and up to 90.5% market share – but also oversaw a string of legal actions that cost more than its entire annual turnover to settle.

* THE FIRST, raised by New Jersey floor adverts firm FloorGraphics in 2006, saw NAM accused of computer hacking and espionage. It ended when NAM bought out its smaller rival for $29.5m – midway through setting out its case to a Federal court.

* THE SECOND, versus Valassis Communications, said NAM was forcing its customers to sign long-term newspaper ‘insert’ contracts or face sharp price increases for the in-store advertising displays it provides. In 2010 NAM settled for $500m and made undertakings about sharing business.

* THE THIRD action in 2011 saw NAM again reaching for the chequebook – paying out $125m to rival Insignia Systems amid more allegations of anti-competitive behaviour.

* THE FOURTH action, in 2016, saw NAM pay $280m to settle a lawsuit worth a potential $2bn brought by Dial Corp. and the Kraft Heinz Co. over the monopolistic practises allegedly perpetrated under Carlucci’s stewardship of the company.

* A FIFTH action, this time for $560m, again by Valassis Communications, remains in progress. It alleges that NAM continued to behave anti-competitively after its 2010 settlement, ultimately driving its rival from the in-store promotions business.

“Feels like they are raping us and they enjoy it and there is no desire to work with us in partnership to grow our business,” ~ NAM client Debra Lucidi

The evidence presented against NAM by its accusers was weighty. The stories of its abuse of its monopoly were unequivocal – from the binary truth of its computer hacking to searing contemporary accounts of its attitude toward customers it regarded as disloyal.

“Raping us”: Debra Lucidi reads internal email on NAM’s business conduct

One such was Debra Lucidi, who fell foul of NAM’s predatory pricing tactics when her company, the dessert manufacturer Sara Lee, started using Valassis Communications to provide ‘free-standing inserts’ (FSI) as part of its in-store promotions.

NAM’s reaction to losing the FSI contract with Sara Lee was to start charging more for the other in-store promotions services it also provided them, prompting the following devastating assessment in an internal email read out by Lucidi in a legal deposition.

Lucidi, a former director of business services procurement at Sara Lee, uses words like “pissed,” “livid,” “intolerable” “unforgivable,” “ludicrous,” and “ridiculous” to describe dealing with NAM. Most controversially, it contains the lines:

“This is the way they have been across the board. Adding insult to injury we have had huge issues with accuracy of placement of in store vehicles. Feels like they are raping us and they enjoy it and there is no desire to work with us in partnership to grow our business.”

Violation: NAM paid Valassis 500m for breaking competition laws

In its defence, News America attacked its rivals for seeking legal redress and, despite agreeing to pay enormous sums, denied the allegations against it.

It said in a statement: “A number of our competitors have been unable to compete… so they resorted to litigation as a business strategy rather than compete. NAM continues to vigorously disagree with the claims that were made against it in these cases.”

Further, during the 2010 Valassis case in Michigan, NAM distanced itself from the idea that Carlucci encouraged his staff to take a lead in business from Al Capone – a monster of modern American history – insisting instead that things were being exaggerated.

Al Cap-none: Carlucci liked De Niro and Coppola but mafia fascination was ‘exaggerated’

Carlucci himself was questioned as to his own day-to-day use of mafia language. One example was his calling NAM’s General Sales Managers ‘good earners’ – a phrase borrowed from Francis Ford Coppola’s genre-defining mob movie, The Godfather.

“Probably I enjoy, you know, (The) Godfather and I enjoy the term ‘good earnings’ as a term,” Carlucci explained.

“And I thought it was a nice term that people would relate to. It has no bearing on (my) being an Italian American.”

Setting the denials to one side, many business owners might yet take a dim view of a Chief Executive Officer overseeing so much courtroom action at so breathtaking a financial cost.

However, not only did Rupert Murdoch simply mark Paul V. Carlucci out as one of News Corp.’s star performers – the mogul actively encouraged aggressive business tactics.

Carlucci himself was recorded admitting as much in one of his staff addresses. He said: “Last night Mr Murdoch was saying ‘now you’ve got to really go after them’. That was half the conversation.”

“(NAM) was like a faucet that was spewing dollar bills,” ~ Ken Chandler, former publisher of the New York Post.

The attorney who took Carlucci’s deposition in the Valassis case, Greg Curtner, agreed that Murdoch knew exactly what kind of ship Carlucci ran.

Greg Curtner: “Murdoch is aware”

He said: “I have looked at the evidence and it’s clear to me that Mr Rupert Murdoch is aware of what is going on, on a day to day basis, in his businesses. Mr Carlucci reports to Mr Murdoch.”

On the issue of why Murdoch chose not to rein in NAM, Curtner went on: “The best answer to that question came from Mr Carlucci’s own mouth: ‘I work for a man who has to have it all and does not understand being told that he can’t have it all’. That’s the culture, shown time after time, in business activity after business activity, lawsuit after lawsuit. The legal fees are staggering.”

Company insiders offered further insight into Murdoch’s sponsorship of Carlucci.

Steve Marquis, a former vice president for retail sales development at NAM, depicted a man who was highly effective – and liked to play rough.

“Paul Carlucci is smart, he’s charming, but he’s ruthless,” he said.

“This (NAM) was like a faucet that was spewing dollar bills,” said Ken Chandler, the former publisher of Murdoch’s New York Post. “Paul was take-no-prisoners, win-at-all-costs,” he went on. “Rupert loved that.”

* Next in this four-part series: Mob Mentality Rewarded, Carlucci’s new seat at the top table…