Published online April 3, 2006
PEDIATRICS Vol. 117 No. 4 April 2006, pp. 1462 (doi:10.1542/peds.2005-3088)
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Tobacco Industry Profits From Smoking Images in the Movies

Benjamin Alamar, PhD
Stanton A. Glantz, PhD
Center for Tobacco Control Research and Education
Institute for Health Policy Studies
University of California
San Francisco, CA 94143-1390

To the Editor.—

Previous studies have estimated that images of smoking in the movies lead ~390000 adolescents to start smoking each year,1 which creates a regular stream of profits for the cigarette companies. Using data on average revenue and operating income (as a measure of profit) per smoker by Philip Morris USA (PMUSA) and Reynolds American Inc (RJR), we calculate the present value of the revenues and operating income delivered to the cigarette companies by images of smoking in the movies each year.

Total revenues and operating income (as a measure of profit) for both PMUSA and RJR from 2001–2004 were obtained from their annual reports2,3 and inflated to 2004 dollars using the Consumer Price Index. Total PMUSA customers were estimated to be 23 million by multiplying the total number of adult smokers (~46 million4) by the PMUSA market share (~50%2). Total revenues and total profit for each year were then divided by the number of PMUSA customers to determine the average revenue and profit that PMUSA receives per smoker. The average revenue and profit in each year were then averaged across time to estimate the general average revenue ($852) and profit ($216) per smoker per year. RJR market share was ~20%3; the same procedure was performed with data from RJR to estimate the average revenue ($773) and income ($92) per smoker per year. (This calculation included adjusting the 2003 operating income upward by $4086 million for a 1-time accounting charge for the valuation of the RJR trademarks.3) The smoker-weighted average for average revenue and profit for these 2 companies is $830 and $181, respectively. Because these are the 2 largest companies in the US tobacco industry and have the least amount of year-to-year variability in the industry, these smoker-weighted revenue and profit estimates are good estimates for the entire industry.

The smoker-weighted average revenue and profit per smoker per year were then used in a present-value calculation to determine the present value of revenues and profits assuming that a new smoker will smoke for 18 years.5 Using a 5% discount rate, the 18-year revenues and profit per smoker were $10527 and $2291, respectively.

The present value of the lifetime revenues and profit created each year by images of smoking in the movies is calculated by multiplying the total number of new regular smokers (390000) by the total present value of revenues and profit over the lifetime of an average smoker. This calculation estimates that each year, images of smoking in the movies create a present value of $4.1 billion in revenues and $894 million in profits to the US tobacco industry. Because American movies are distributed throughout the world and the tobacco companies operate on a global scale, the global value of smoking in the movies to the tobacco industry is much larger.

ACKNOWLEDGMENTS

This research was supported by National Cancer Institute Grant CA-61021.

REFERENCES

  1. Charlesworth A, Glantz S. Smoking in the movies increases adolescent smoking: a review. Pediatrics. 2005;116 :1516 –1528[Abstract/Free Full Text]
  2. Altria Inc. Annual Report. New York, NY: Altria Inc;2001 –2004
  3. Reynolds American Inc. Annual Report. New York, NY: Reynolds American Inc;2001 –2004
  4. Centers for Disease Control and Prevention. Cigarette smoking among adults: United States, 2003. MMWR Morb Mortal Wkly Rep. 2005;54 :509 –513. Available at: www.cdc.gov/mmwr/preview/mmwrhtml/mm5420a3.htm[Medline]
  5. Pierce JP, Gilpin E. How long will today's new adolescent smoker be addicted to cigarettes? Am J Public Health. 1996;86 :253 –256[Abstract/Free Full Text]
PEDIATRICS (ISSN 1098-4275). ©2006 by the American Academy of Pediatrics




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