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MEMORANDUM PHILIP MORRIS TARGETING ISSUES David Nicoli Carolyn~M. Landever April 4, 1990

TABLE OF CONTENTS II. Page ADVERTISING A. Theme 1 -- Cigarette Advertising Targets Youth ............................... 2 i. Newspapers ............................. 2 2. Magazines .............................. 5 3. Out-of-Home Advertising ("OOH") ....... I0 Theme 2 -- Targeting Minorities and Women .................................. 13 i. General ............................... 13 2. Newspapers ............................ 19 3. Magazines ............................. 21 4. OOH Advertising ....................... 22 C. Theme 3 -- Association Between Sports and Smoking ................................ 29 i. Newspapers ............................ 29 2. Magazines ............................. 30 3. OOH Advertising ....................... 34 PROMOTION AND EVENT SPONSORSHIP ................ 37 A. Theme 1 -- Promotion and Sponsored Events Targets Youth ....................... 37 I. Promotions ............................ 37 2. Event Sponsorship ..................... 48 B. Theme 2 -- Targeting Minorities and Women .................................. 54 i. Promotions ............................ 54 2. Event Sponsorship ..................... 56 C. Theme 3 -- Association Between Sports ...... 57 i. Promotions ............................ 58 2. Event Sponsorship ..................... 58

MEMORANDUM TO: Cary Sherman Claire Reade FROM: RE : David Nicoli Carolyn Landever Targeting Issues Per your request, set forth below is a list of the "targeting" issue themes that we have identified. With respect to each major theme, we have further identified various issues relevant to that theme and provided background and other information concerning those issues. In addition, we have also identified further areas of inquiry concerning those issues. I. ADVERTISING "Advertising" as used herein refers only to newspaper, magazines and out-of-home advertising. All other activities PM undertakes as part of its efforts to sell its tobacco products are dealt with infra under "Promotion and Event Sponsorship." This division roughly corresponds with how PM divides responsibilities in its operational groups. As a general matter, there is no doubt that PM's advertising is targeted at demographic groups. Each of the seven main PM brands have designated primary and secondary target markets, including such groups as smokers aged 18-21, minorities, and women. See Attachment 1 for the key marketing and media objectives of each brand in 1990.

- 2 - Theme 1 -- Cigarette Advertising Targets Youth Critics will argue that certain cigarette advertisements target youth. To assist in rebutting critics' charges in this regard, we have identified the following issues and developed the following information. 1. Newspapers a. How many newspapers does PM advertise in? The number varies by market, but PM's total number is over 1000. Of general newspapers, PM advertises in the newspapers in the specific geographic market, or national papers (USA Today, Wall Street Journal), or suburban weekly papers. PM also advertises in minority newspapers. Newspapers have very little demographic skew, however, so generally they are used much more for geographic targeting than for demographic targeting. "Alternative" newspapers like the Village Voice are exceptions to this rule, because they are much more like magazines, that deliberately attempt to appeal to specific demographic groups. [Memo to PM (Advertising) File, from C. Landever, re: Phone Conversation with Rick Stirlen, PM Director of Media, Concerning Newspaper Advertising, 3/20/90 (hereinafter referred to as "Newspaper Conversation with Rick Stirlen")]

- 3 - Do D~es PM attempt to run its ads in any particular section or any particular part of the paper? If so, why? Brands like Marlboro often advertise in the sports section, since it attracts the desired readership of men and blue-collar workers. Most often, however, PM advertises in the general news section, since that is the most read section of a general newspaper. [Newspaper Conversation with Rick Stirlen, PM] Co Does PM have a rough idea what the under 18 or 21 readership is of the newspapers in which it runs ads? PM does not monitor youth readership, since newspapers are overwhelmingly delivered to and read by adults. Average daily readership by younger adults (18-24) has dropped from 73% in 1970 to 57% in 1989. Among teenagers (12-17), 81% "make use" of the newspaper at least once during the week. Teens are less frequent newspaper readers than adults; just 16% read the newspaper five days out of five, and 40% read one or two days out of five. Leo Burnett data for newspaper magazine supplements lists under- 18 readership as: Parade (7.79%); Sunday (total) (6.59%); U.S.A. Weekend (8.71%). [Newspaper Conversation with Rick Stirlen, PM; Newspaper Advertising Bureau memo, Newspapers and Young People: Trends and Industry Responses, 1/25/90; Newspaper Advertising Bureau Report: Teenagers and Newspapers 1989; memo from Leo Burnett U.S.A. to PM re: Percentage of Adults in PM's Total

- 4 - Audience, 8/8/89 (herein- after referred to as "Leo Burnett memo, 8/8/89")] do Does PM have guidelines concerning when it will not run ads in newspapers because of youth concerns? If so, what are they? There are no guidelines, because there is no concern. Newspapers tend towards an adult audience, more like that of Time Magazine. [Newspaper Conversation with Rick Stirlen, PM] eo Identify the types of ads PM principally runs in newspapers, such as full page, inserts, coupon offers, etc. Generally, PM runs full-page ads, though coupon offers may be included. Until this year there was a half-page Marlboro ad in the sports section, but since it was not cost effective it was cancelled. [Newspaper Conversation with Rick Stirlen, PM] Does PM run ads in college newspapers or any other types of newspapers that may have substantial audiences under 21 years of age? No ads are run in college newspapers, in accordance with the Advertising Code provision that: "No advertising shall appear in publications directed primarily to those under 21 years of age, including school, college or university media (such as athletic, theatrical or other programs), comic books or comic supplements." However, PM does run ads in some military newspapers. See Attachment 2.

- 5 - [Newspaper Conversation with Rick Stirlen, PM; Principles Governing Cigarette Advertising and Sampling; 1988, 1989 Military Newspapers] PM also runs ads in "Alternative Newspapers," including such papers as the Village Voice, City Pages, and the Baltimore City Paper, which some may perceive as directed towards readers under 21. See Attachment 3. [Newspaper Conversation with Rick Stirlen; 1989, 1990 Alternative Newspapers] 2. Magazines a. In how many magazines does PM run ads? PM has provided us with a list of 217 magazines used by PM for advertising. Attachment 4. See What are the categories of magazines in which PM runs advertising? Magazine categories include: automotive, entertainment, epicurean, fishing and hunting, general editorial, home service, men's general interest, motorcycle, music news weeklies, science/technology/mechanics, sports, tabloids, women's fashion/image, women's general interest, women's service, black, entertainment programs, hispanic, military, and regional/local. [PM Magazine Fact Book; Memo to PM (Advertising) File, from C. Landever, re: Conference Call with Rick Stirlen, PM Director of Media, 3/14/90 (hereinafter referred to as "Conversation with Rick Stirlen"), pp. 7-9]

- 6 - bo Does PM have formal or informal guidelines concerning when it will not run ads in magazines because youth readership is too high? If so, what are they? There are no inflexible written guidelines. Rick Stirlen describes the desired audience breakup today as 75-80% adult. Rick noted, however, that there are exceptions to this audience percentage, because PM focuses mainly on editorial content. Rick describes it as "a common sense guideline with an editorial focus" on articles, advertisements and the age of models used in the magazine. First, PM looks at the magazine's editorial focus. Then, if it appears questionably directed, PM looks at the teenage share of audience. For example, PM advertises in Ski, though it has a 34.7% under 18 readership; Sport, with a 28.5 under 18 readership; and Skiing, with a 28% under 18 readership. PM regards these magazines as targeted at adults, since the sports have broad age appeal. Leo Burnett indicates in its memo that a 60/40% guideline was used in ascertaining the propriety of TV advertising "during tobacco's final years on television." Thus, even magazines with youth readership higher than the typical 20% may well fall under the percentage formally deemed acceptable in the past. [Conversation with Rick Stirlen, pp. 8-9; Leo Burnett memo, 8/8/89] Magazines not advertised in by PM include: In Fashion (old version), Model, National Lampoon, R&B Music and Entertainment Monthly, Dirt Rider, Record, and Splash. In particular, PM does not advertise in magazines primarily directed at youth. See Attachment 5. In some instances, the magazine itself refuses to accept tobacco advertising; in other cases, PM has

- 7 - voluntarily chosen not to advertise in the magazines because of a concern for youth. [Leo Burnett memo, 8/8/89; Landever, list of "Youth" Magazines Not Used by PM, 3/27/90] Co Does PM attempt to run its ads in any particular sections or part of the magazine? If so, why? Information needs to be developed here. do The "audience delivery" data provided by Leo Burnett, in its memo to PM re "the percentage of adults in the total audience delivered by publications utilized by Philip Morris, U.S.A.," discuss "total adult (18+) audience." Is age 18 the ad industry standard for determining "adult" readership? Can PM make 21+ data available? Information needs to be developed here. eo The PM 1990 Plan summaries, provided to us by PM in a notebook indicating marketing strategies for each brand, expressly discuss "targeting" the 18-21 year old age groups for certain brands. Is this a longstanding practice? Yes, that is the generally accepted practice. Nonetheless, this practice raises a concern that PM may be perceived as not complying with at least the spirit of the Advertising Code, which states that ads shall not appear in publications directed primarily to those under 21. Query whether we should pursue this further? [Conversation with Rick Stirlen, pp. 6-8; memo to

- 8 - PM (Advertising) File, from C. Landever, re: Conference Call with Ellen Merlo, PM Vice President of Marketing Services, 3/14/90 (hereinafter referred to as "Conversation with Ellen Merlo"), p. ii] Identify the magazines with the highest degree of under 18 readership. A Leo Burnett memo to PM lists the following magazines: Ski (34.71%); Skiing (28.31%); Sport (28.5%); Rolling Stone (26.97%). Leo Burnett also lists magazines with a high percentage of young readers which PM does not use for advertising, such as Seventeen (5O.7O%). [Leo Burnett memo, 8/8/89] However, it is not clear that the Leo Burnett memo provides a comprehensive demographic survey of all magazines that PM advertises in. ge Identify magazines that, although they may not have a high degree of under 18 readers, may present the perception that they are read by a substantial number of those readers. Magazines which could be perceived as popular with youth include: Sports Illustrated (18.56%); Mademoiselle (18.04%); US (?%); Rolling Stone (26.97%); Playboy (?%); Penthouse (?%). For many of these magazines, we may be able to refute with audience statistics the perception that these magazines have a substantial youth readership.