Tobacco Companies Cut Marketing Spending

WASHINGTON (AP) -- After setting a record high in 2003, tobacco companies spent less money marketing and advertising their products in 2004 and 2005, a federal agency said Thursday.

Promotional spending by the five largest U.S. cigarette makers dropped to $14.15 billion in 2004, down from $15.15 billion in the previous year, and fell further to $13.1 billion in 2005, according to a report issued by the Federal Trade Commission. The FTC has monitored cigarette sales and marketing trends in regular reports since 1967.

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Anti-tobacco activists said the companies' promotional spending is still double the amount spent in 1998, the year the major cigarette companies entered into a legal settlement with a group of U.S. states.

The Campaign for Tobacco-Free Kids said such aggressive price discounting by the tobacco companies has contributed to a reversal in youth smoking trends. A recent survey by the Centers for Disease Control and Prevention of smoking by high school students found a slight increase in 2005, reversing several years of reductions in youth smoking rates.

"The small decline in tobacco marketing expenditures... is a drop in the bucket compared to the massive increase between 1998 and 2003," said Matthew Myers, president of the Campaign for Tobacco-Free Kids.

The tobacco industry spent $6.7 billion in marketing in 1998, the FTC report said.

Most of the tobacco companies' promotional spending is in the form of price discounts to cigarette retailers and wholesalers to reduce the price of cigarettes to consumers, the FTC report said, while advertising in newspapers, magazines and on billboards has dropped significantly in recent years.

The companies provided $10.9 billion in price discounts in 2004, equal to 77.3 percent of all marketing expenditures, and $9.8 billion, or 74.6 percent of promotional spending, in 2005, the report said.

Myers criticized the discounts for offsetting the price impact of recent sales tax increases by many states. The discounts "make cigarettes more affordable to children, the most price-sensitive customers, and undermine state efforts to reduce tobacco use by increasing tobacco taxes."

Brendan McCormick, a spokesman for Philip Morris USA, said the price discounts are intended to reach adult smokers.

Michael Neese, another spokesman for the company, said that despite the discounts, the average retail price for Marlboro cigarettes increased 68 percent from 1998 to 2005.

The report comes as Congress considers legislation that would give the Food and Drug Administration the authority to regulate the production and marketing of tobacco products. Similar legislation passed the Senate in 2004 but not in the House. The current bill has bipartisan support and may have better prospects for passage with Democrats now in charge of both chambers.

The FTC said its findings were based on data submitted by the five major cigarette makers in the United States: Altria Group Inc., parent of Philip Morris, which makes Marlboro cigarettes; Reynolds America Inc., which owns R.J. Reynolds Tobacco Co., makers of Camels; Houchens Industries Inc., the parent of Commonwealth Brands Inc., which makes discount brands USA Gold and Sonoma; Loews Corp., which owns Lorillard Tobacco Co., which makes Newports; and Vector Group Ltd., parent of Liggett Group Inc. and Vector Tobacco, which sells Grand Prix and Eve cigarettes.

Houchens sold Commonwealth Brands to British company Imperial Tobacco Group PLC earlier this year.

Shares of Altria dropped $1.14 to close at $69.33, while shares of Reynolds American rose 35 cents to $65.25, shares of Vector Group declined 16 cents to $18.49, and shares of Loews' Carolina Group, the company's cigarette division, dropped 63 cents to close at $76.55, all on the New York Stock Exchange.