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Secret Videos Mean Murdoch's Grocery-Ad Troubles Just Took a Turn for the Worse

By Jim Edwards

Updated on: March 11, 2010 / 4:25 PM EST / MoneyWatch

A few weeks ago, Rupert Murdoch was on the verge of closing the book on his supermarket advertising troubles. But a set of videotapes that allegedly show one of his top lieutenants joking about the effectiveness of their predatory pricing tactics could mean fresh grief for News Corp. (NWS).

That, coupled with recent disarray on the Murdoch legal team whose job it is to prevent such videos from emerging, means that circumstances are controlling News right now, and not the other way around.

News Corp.'s News America Marketing Group division controls an empire of grocery coupons and provides $350 million in annual operating income that funds the rest of Murdoch's media conglomerate. NAM has been sued by three other companies who believe the empire is an illegal monopoly.

A tiny supermarket advertising agency that won a $30 million settlement from NAM last year has asked a judge to set aside the deal because News allegedly failed to reveal videotapes that show New York Post publisher and NAM CEO Paul Carlucci saying that the competitor "will not even turn a profit" because he has under-priced his deals with supermarkets.

Floorgraphics Inc. -- which invented those vinyl ads you can see on the floors of grocery stores across America -- claims News committed "fraud" in concealing the videos before their case went to trial. The two sides settled after just a few days of testimony in 2009. In the case, FGI alleged that News' supermarket ad agency, News America Marketing Group, had a policy of predatory pricing that maintained an illegal monopoly on the provision of grocery coupons in stores, and that News hacked into its computers to steal client information.

It was only after the settlement -- which News has separately alleged was the subject of fraud by FGI -- that videotapes of the CEO of NAM emerged showing him talking about the economic damage he was inflicting on FGI. Those tapes came up in a different case in which another supermarket agency, Valassis (VCI) ultimately won a $500 million settlement from News.

According to FGI, the tapes show Carlucci in "explosive footage from sales meetings that demonstrated that NAM representatives espoused tactics of making non-economic deals with retailers in order to drive up the cost of doing business for competitors and ultimatley force them out of business."

... a NAM executive is recorded in a video boasting that NAM has delivered "quite a blow to the Rebh brothers" and predicting FGI "will not even turn a profit".

Carlucci is allegedly shown on the video saying he has FGI "on the run" and then joking to News attorneys in the room that he "didn't really say that."

If the tapes really do show mentions of FGI, that's just the sort of material that lawyers have a legal duty to turn over litigants prior to a trial.

FGI's motion comes after a series of strange events in the increasingly complicated litigation that currently besieges Murdoch's supermarket advertising empire. It had settled with FGI and Valassis, and was heading into an April settlement conference (or failing that a trial) with its last remaining adversary, Insignia Systems (ISIG), which sued with similar claims.

But in February, News lawyers told the judge in the Insignia case they weren't ready for trial and wanted the date pushed back; another group of lawyers headed by News' former chief ethics officer then mysteriously withdrew from the case, offering no explanation as to why they were unable to continue representing the company.

With the FGI suit re-opened, Murdoch appears poised to snatch defeat from the jaws of a reasonable compromise.

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