The effects of youth, price, and audience size on alcohol advertising in magazines

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1 The effects of youth, price, and audience size on alcohol advertising in magazines Jon P. Nelson, a,* Douglas J. Young b a Department of Economics, Pennsylvania State University, United States b Department of Agricultural Economics and Economics, Montana State University, United States Abstract Using count data models, we examine the effects of youth readership, price of advertisements, and audience size on alcohol advertising in 35 major magazines. The regressions also account for readership demographics (adult reader age, income, gender, race), magazine characteristics (newsstand sales, number of annual issues), and type of beverage (beer, wine, spirits). Results indicate significant effects for price, audience size, and adult demographics, but fail to support the claim that alcohol advertisers target adolescent readers. Keywords: Magazines; Advertising; Alcohol; Count Data JEL Classifications: L82, L66, M37, C25 Word count: 1970 (text & references) * Corresponding author. Tel.: ; fax address: jpn@psu.edu (J.P. Nelson). Address for mail: 642 Glenn Road, State College, PA October 2005

2 1. Introduction Considerable controversy exists regarding possible targeting of youth by alcohol advertisers, including advertisements placed in magazines (FTC, 1999, 2003; NRC, 2003). Several recent reports attempt to analyze this issue by using descriptive methods that label magazines as youth oriented if the adolescent readership is more than its share of the overall population (CAMY, 2002, 2005). These reports fail to account for other aspects of advertising placement decisions, such as the price of an advertisement, audience size, and adult demographics. Using count data regressions, this paper models alcohol advertisers placement decisions as a derived demand for advertising space. We estimate Poisson and negative binomial regressions for advertisements for each beverage (beer, wine, spirits) placed in 35 major magazines during Our results indicate significant effects for price, audience size, and adult demographics, but fail to support the claim that alcohol advertisers target adolescent readers. 2. Model and Data Advertisers demand for media space is derived from readers demand for information about the existence and attributes of products and brands, including information that is persuasive (Ehrlich and Fisher, 1982). Assume the advertiser has solved the problem of media mix and must decide how much space to acquire in available magazines. Magazines can be described in terms of reader demographics (age, gender, race, income); characteristics of the magazine (subject matter, paid circulation, single-copy sales, audience size, number of annual issues); and the magazine s price for a standardized advertisement, e.g., cost of a one page four-color (P4C) advertisement. Because advertising is provided jointly with the magazine s subject matter and magazines also contain numerous ads, there is considerable clutter or noise in the information process. Several specialized services exist to collect, verify, and provide information about readers and magazines to publishers and advertisers, which enables advertisers to reduce the noise in the information process through placement or targeting decisions.

3 2 We estimate a stylized model of the demand for media space. Because alcohol ads are a small portion of the total number of advertisements in a given magazine or generally, endogeneity of price is not a concern. (Alcohol ads were 3.5% of measured magazine ads in 2001; U.S. Statistical Abstract.) Specifying the demand function as a count data model leads to the following formulation of the expected number of occurrences (counts) of alcohol ads, N i, placed in the i-th magazine ( ) ( i) = exp i β + i θ + α i + δln( i) EN X Z P issues (1) where X is a vector of reader demographics, Z is a vector of magazine characteristics including audience size, P is the cost per thousand (CPM) circulation for a P4C advertisement, and $, 2, and " represent the coefficients. Audience size is measured by readers per copy, and is a measure of the marginal benefits of advertising that should be important for placements. This variable reflects the pass-along rate per copy, since it measures the number of adult readers compared to paid circulation. Further, weekly magazines have more annual alcohol advertisements than monthly magazines, holding incidence rates constant. Thus, Eq. (1) treats the annual number of issues of each magazine as the exposure variable, which implies that the elasticity coefficient * should be close to unity (Cameron and Trevedi, 1998, p. 81). For count data, the Poisson model offers a number of advantages, but distribution plots suggested that the negative binomial might be more appropriate (Winkelmann, 2003, p. 32). We estimate Eq. (1) separately for beer, wine, and spirits. 2.1 Data and Variables The empirical analysis uses alcohol ads placed in 35 magazines for the five-year period This approach ignores year-to-year fluctuations in placements, which are not of particular interest, and reduces the number of zeros in the ad counts. More important, it is often argued that advertising has cumulative or lagged effects on adolescent behaviors (NRC, 2003), and examination of total placements for a given time period captures this broader concern. The number of ads per magazine by beverage are

4 3 from reports by Competitive Media Reporting (Garfield et al., 2003). The key explanatory variables in the study are readership demographics, which are obtained from Mediamark Research Inc. (MRI, 2003a, 2003b). For adults, the MRI readership data are based on face-to-face interviews and self-reported readership by 13,000 persons. For youth, a mail survey is used. For each magazine sampled, MRI takes the readership estimates and extrapolates them to the nation. In the present study, youth readers are defined as the age group 12 to 19 years, and constitute about 14% of the U.S. population that is 12 years and older. The demographic data also include the percent adult male readers, percent black readers, median adult reader age, and median adult reader income. The null hypothesis is that increased youth readership does not result in an increase in the number of alcohol ad placements. Expected signs and magnitudes for the other demographic variables are largely uncertain, although it is well known that beer advertisers focus on males. In principle, the objective of the study is to unbundle the advertising decisions of alcohol producers by examining those influences that systematically increase (or decrease) the frequency of ad placements. 3. Empirical Results Table 1 lists the data sources and variables used in the analysis. The count data are highly skewed, suggesting the standard Poisson model may be inappropriate. The proportion of zeros is 22.8% for beer, 31.4% for wine, and 11.4% for spirits. We estimate the negative binomial model and the zeroinflated version of the Poisson model. The dependent variables include zero counts, which are proportionately large for wine advertising. Table 2 presents the empirical results. The coefficients indicate the proportional increase in the expected number of placements for a unit increase in an explanatory variable. More generally, positive coefficients indicate that advertisers tend to favor or target magazines with the reader characteristic in question, while negative coefficient indicate the opposite effect. Robust standard errors are used to determine statistical significance at the 95% confidence level, two-tailed test.

5 4 3.1 Negative Binomial Results The negative binomial results in Table 2 fail to demonstrate that targeting of youth is occurring. The youth coefficients are significantly negative, rather than positive. The coefficients for median age of adult readers are significantly negative for beer and spirits, which implies these advertisers favor young adult audiences. Adult median income is significantly positive for wine and spirits, but not for beer. Percent adult male readers is significantly positive for beer and spirits, and negative for wine. A binary variable for three black magazines is significantly positive for wine and spirits. Hence, the demographic results indicate that beer and spirits advertisers favor magazines with more men and younger adult readers, but not adolescents. Wine advertisers favor magazines with more women and higher-income readers, but not adolescents. As pointed out by the FTC (2003, p. 33), the young adult population (ages 21-34) is about 50% larger than the underage youth population. In addition, alcohol consumption is higher among young adults compared to older adults (NRC, 2003). Hence, there are sound business reasons for alcohol companies to advertise in magazines with large young adult audiences. The other results pertain to cost of a standardized advertisement and features of the magazine. The cost of a P4C ad is significantly negative for beer and spirits. The measure of audience size adult readers per copy is significantly positive for spirits. The variable for single-copy sales (newsstand sales) performed poorly, and is never significant. The exposure variable annual number of issues is always significantly positive. 3.2 Zero-Inflated Poisson Results In addition to the negative binomial model, we estimated the Poisson and zero-inflated Poisson (ZIP) models. The undeflated Poisson model is nested within the negative binomial model (Winkelmann, 2003, p. 104). A likelihood ratio (LR) test strongly rejected the Poisson model in favor of the negative binomial model. The negative binomial does not perfectly nest the ZIP model. In order to compare these results, we applied Vuong s test for non-nested models (Greene, 2000, p. 891). The tests yield statistics

6 5 with positive values of 3.27 (beer), 3.91 (wine), and 2.19 (spirits). Values greater than 2.0 favor the negative binomial model over the ZIP model. We conclude that the best econometric representation of count data on alcohol advertising is the negative binomial model. 4. Discussion The results in the present paper provide no evidence that the alcohol industry is using magazine ad placements to target underage youth. Rather, our results indicate that ad placements are actually negatively related to the percent of adolescent readers. Our methods improve on an earlier study by Garfield et al. (2003) that failed to control for audience size and the price of an advertisement. This is especially important for distilled spirits, which is the beverage that relies most heavily on magazine advertising. Our other findings are consistent with the stylized facts of alcohol demand. For example, beer and spirits consumption decline markedly with age, while age effects are less important for wine. Similarly, the income elasticity for beer is lower than for wine or spirits. Finally, the gender gap is much larger for beer and spirits than it is for wine. More generally, our results demonstrate the importance of treating advertising placements as an economic decision rather than a marketing ploy. The regulation of alcohol advertising is a major part of the debate over the role of beverage alcohol in society. The magnitude of expenditures and the possibility that some ads might target youth has generated concern about the adverse effects of alcohol advertising. Deceptive and misleading alcohol advertising is banned by the U.S. Federal Trade Commission and by the Alcohol and Tobacco Tax and Trade Bureau in the U.S. Department of Treasury. Self-regulation also occurs in the form of industry advertising codes, such as the Beer Institute s Advertising and Marketing Code. In 2001, the U.S. alcohol industry spent more than $1.5 billion on advertising using conventional broadcast and print media, including expenditures of $397 million on magazine advertisements. However, several literature reviews fail to provide evidence that alcohol ads affect the drinking behaviors of youth in a meaningful manner (FTC, 2003; Nelson, 2001; NRC, 2003, p. 134). This paper provides new evidence as part of the continuing debate on this issue.

7 6 Acknowledgments The authors consult with a law firm that represents companies in the alcohol industry. This paper was prepared independently and was not reviewed by the law firm or other interested parties prior to submission for publication. The usual caveats apply. References Cameron, A.C., Trivedi, P.K., Regression Analysis of Count Data. Cambridge University Press, Cambridge. Center on Alcohol Marketing and Youth, Overexposed: Youth a Target of Alcohol Advertising in Magazines. CAMY, Washington, DC. URL Center on Alcohol Marketing and Youth, Youth Overexposed: Alcohol Advertising in Magazines, 2001 to CAMY, Washington, DC. URL Ehrlich, I., Fisher, L., The derived demand for advertising: A theoretical and empirical investigation. American Economic Review, 72, Federal Trade Commission, Self-Regulation in the Alcohol Industry: A Review of Industry Efforts to Avoid Promoting Alcohol to Underage Consumers A Report to Congress. FTC, Washington, DC. URL Federal Trade Commission, Alcohol Marketing and Advertising A Report to Congress. FTC, Washington, DC. URL Garfield, C.F., Chung, P.J., Rathouz, P.J., Alcohol advertising in magazines and adolescent readership. Journal of the American Medical Association, 289, Greene, W.H., Econometric Analysis, 4th ed. Prentice-Hall, Upper Saddle River, NJ. Mediamark Research Inc., 2003a. The MRI Teen Study, Teenmark 2000 Technical Guide. URL Mediamark Research Inc., 2003b. Pocketpiece Top-Line Reports. URL \National Research Council, Institute of Medicine, Reducing Underage Drinking: A Collective Responsibility. National Academies Press, Washington, DC. Nelson, J.P., Alcohol advertising and advertising bans: A survey of research methods, results, and policy implications. In: Baye, M.R., Nelson, J.P. (Eds.), Advances in Applied Micro-Economics: Advertising and Differentiated Products. JAI Press, Amsterdam, pp Winkelmann, R., Econometric Analysis of Count Data, 4th ed. Springer, Berlin.

8 7 Table 1 Variable descriptions and data sources Variable Definition, units, and summary statistics Data source Ad counts for beer, wine, and spirits Percent youth readers Adult reader median age Adult reader median income Percent adult male readers CPM price of P4C ad Percent single-copy sales Adult readers per copy (rpc) Number of alcohol ads for the period Means (s.d.) are beer, 34.3 (70.9); wine, 12.7 (23.5); and spirits, (305.4). Medians are 5, 2, and 126, respectively. Youth audience (ages yrs.) divided by total audience (youth + adults). Mean (s.d.) = 21.3% (10.7). Range: %. Median age of adult readers (ages 20+). Mean (s.d.) = 36.8 yrs (6.2). Range: yrs. Median household income of adult readers in Mean (s.d.) = $47.9 (7.3). Range: $ $62.1. Adult male audience divided by total adult audience (adult men + adult women). Mean (s.d.) = 44.7% (29.4). Range: %. CPM price of a one-page four color (P4C) ad in Magazine s cost for a 4PC ad divided by rate base circulation (in thousands). Mean (s.d.) = $52.2 (17.3). Range: $ $92.3. Percent of paid circulation accounted for by single-copy sales at newsstands. Mean (s.d.) = 22.8% (18.4). Range: %. Total adult audience divided by circulation (i.e., paid sales, including newsstands). Mean (s.d.) = 5.70 (1.8). Range: rpc. Garfield et al. (2003) MRI Magazine (Teen) MRI Magazine Report MRI Magazine Report MRI Magazine Report SRDS Magazine Advertising Source SRDS Magazine Advertising Source MRI Magazine Report Black mags binary Binary dummy variable for Ebony, Jet, and Vibe magazines (= 1). Author constructed Annual no. of issues Log of annual no. of issues is used as the exposure variable. MRI Circulation Report Unlogged mean (s.d.) = 22.9 (17.4). Range: issues. MRI Magazine Report, MRI (Teen) Magazine Report, and MRI Circulation Report, accessed at Standard Rate and Data Service, SRDS Consumer Magazine Advertising Source. SRDS, Des Plaines, IL. Audience is a measure of total readership, including primary readers (circulation or paid sales) and pass-along readers. List of magazines (Y indicates youth (ages 12-19) readership is 14% or more): Allure (Y), Better Homes & Gardens, Car & Driver (Y), Cosmopolitan (Y), Ebony (Y), Elle (Y), Entertainment Weekly (Y), Essence (Y), Family Circle, Field & Stream, Glamour (Y), Good Housekeeping, In Style (Y), Jet (Y), Life (Y), Maria Claire (Y), Motor Trend (Y), National Geographic (Y), Newsweek (Y), People Weekly, Popular Mechanics (Y), Popular Science (Y), Reader s Digest, Road & Track (Y), Rolling Stone (Y), Soap Opera Digest (Y), Spin (Y), Sport (Y), Sporting News (Y), Sports Illustrated (Y), Time, TV Guide (Y), Vibe (Y), Vogue (Y), and Women s Day.

9 Table 2 Count data regression results (dep. variables are cumulative ad counts for 35 magazines, ) 8 Negative Binomial Zero-Inflated Poisson Variable Beer Wine Spirits Beer Wine Spirits Constant (5.84)* (3.78) (3.60)* (.915)* (1.34) (.329)* Percent youth readers (ages 12-19) (.058)** (.038)* (.030)* (.011)* (.018)* (.004)* Adult reader median age (.108)* (.075)** (.077)* (.026)* (.029)* (.009)* Adult reader median income (.048) (.037)* (.038)* (.012) (.014)* (.004)* Percent adult male readers (.017)* (.012)* (.010)** (.004)* (.007)* (.001)* Black mags binary (1 = Ebony, Jet, Vibe) (1.09) (.803)* (.754)* (.282)** (.461)* (.085)* CPM price of P4C ad (.030)* (.018) (.018)* (.006)* (.008) (.002)* Percent single-copy sales (.025) (.015) (.016) (.004)* (.007) (.001)* Adult readers per copy (.183) (.101)** (.115)* (.037)** (.039)* (.011)* Log of annual no. of issues (.419)* (.294)* (.289)* (.069)* (.159) (.030)* Log likelihood Alpha dispersion parameter (s.e.) (.387)* (.186)* (.187)* Estimates obtained using Stata 8.2. Robust standard errors in parentheses; one and two asterisks indicate the z-statistic is equal to or greater than 2.06 and 1.71, respectively.