A Little Extra Spending Goes a Long Way

IBISWorld identifies the top four sectors that have increased lobbying spending in line with expanding revenue

By IBISWorld Analyst Andrea Alegria

IBISWorld has identified the top four sectors that have significantly increased their lobbying spending from 2006 to 2011: healthcare, insurance, energy utilities and computers and the internet. Companies in these sectors all faced significant regulation changes that could directly impact their business operations. According to the Center for Responsive Politics and data from the Senate Office of Public Records, these four sectors accounted for 20.0%, or $666.4 million, of total lobbying for 2011. At the industry segment level, the top three spenders included publicly held companies with revenue exceeding $14.0 billion annually. In the five years to 2011, the combined lobbying spending of the top three companies within each industry segment increased for all sectors, as did the combined revenue of each sector’s top three contributors.

Pharmaceuticals and health products

Total lobbying spending: $237.4 million

Industries in the pharmaceuticals and health products segment include manufacturers of brand-name and generic pharmaceuticals as well as biotechnology firms and consultants in the United States. These industries are highly regulated because drugs and health products can be lifesaving, life altering or life threatening. Health authorities and the US Food and Drug Administration (FDA) have imposed strict requirements on pharmaceutical companies in terms of the volume of data needed to demonstrate a product’s efficacy and safety. Marketed products are also subject to continual review even after regulatory approval. Later discovery of previously undetected problems may result in marketing restrictions or the suspension or withdrawal of the product, as well as an increased risk of litigation. Companies in this industry segment have lobbied heavily on legislation concerning healthcare reform, Medicare, prescription drugs and other related issues.

This segment’s total lobbying spending increased at an average annual rate of 4.9% to $237.5 million in 2011, from $187.28 million in 2006. Pharmaceutical companies Pfizer Inc. and Eli Lilly & Co., along with biotech giant Amgen Inc., together contributed about 13.6%, or $32.2 million, of total lobbying dollars spent by pharmaceutical and health products industries in 2011. The three companies were the top lobbying spenders for this segment in 2011, excluding membership-based organizations. The combined lobbying contributions of Pfizer, Eli Lilly & Co. and Amgen increased at an average annual rate of 4.6% in the five years to 2011. The combined revenue of the three companies increased at an average annual rate of 6.5% to $107.3 billion during the same period. Pfizer increased lobbying spending from $11.8 million in 2006 to $22.4 million in 2011. Eli Lilly & Co. jumped from $3.7 million in 2006 to $9.8 million in 2011. Amgen’s lobbying spending declined slightly from $10.2 million in 2006 to $10.0 million in 2011.

Electric utilities

Total lobbying spending: $144.2 million

The electric utilities segment includes strongly regulated industries, such as hydroelectric, nuclear, wind and solar power providers. These industries are not all regulated in the same way. Most electric utility companies must abide by strict federal mandates under the Federal Power Act (FPA) and the Federal Energy Regulatory Commission (FERC). These companies must also comply with hundreds of environmental regulations, including dozens of rules created under the federal Clean Air Act and Clean Water Act. Companies in these industries frequently lobby Congress on clean air, greenhouse gases and other issues that can impact operations. New regulations, especially tightening clean air rules designed to reduce the amount of pollutants, such as mercury, sulfur dioxide and nitrogen oxides, that utilities and others are allowed to release into the air, can impact operating costs for industry firms.

Firms and business organizations in the electric utilities segment increased lobbying expenditures at an average annual rate of 5.4% to $144.2 million in the five years to 2011. The top three lobbying spenders (excluding business associations) were Southern Co., American Electric Power and Duke Energy, which together accounted for 20.4% of the segment’s lobbying spending in 2011. These companies’ combined lobbying expenditures grew at an average annual rate of 13.4% in the five years to 2011 to $29.4 million. The top three companies’ combined revenue increased at an average annual rate of 4.7% to $47.3 billion in 2011.

The sharpest increase in lobbying spending is attributed to American Electric Power, which went from spending about $530,000 in lobbying in 2006 to $10.4 million in 2011. Duke Energy increased lobbying spending from $1.9 million in 2006 to $6.3 million in 2011. Southern Co., however, slightly reduced its lobbying spending from $13.3 million to $12.7 million during the five years to 2011.

Insurance

Total lobbying spending: $144.2 million

Insurance industries, such as US health and medical insurance providers; life insurance and annuities companies; and property, casualty and direct insurance suppliers are directly impacted by healthcare and insurance legislation as well as a myriad of other laws and regulations. Firms in this industry segment have lobbied on legislation concerning data privacy, patent reform, retirement security, pensions, taxes (notably the estate tax) and other issues. Healthcare reform was a focal point of lobbying efforts in recent years.

In the five years to 2011, industries within the insurance segment increased lobbying spending at an average annual rate of 3.4% to $144.2 million. The top three lobbying spenders in 2011 (excluding business associations) were Prudential Financial, Zurich Financial and MetLife, which together accounted for 13.9% of lobbying spending that year. The combined lobbying expenditures of the three companies increased at an average annual rate of 16.4% during the five year period. The companies’ combined revenue grew at an average annual rate of 2.4% to $157.8 billion during the five years to 2011.

Individually, Prudential Financial increased lobbying spending from $4.2 million in 2006 to $8.6 million in 2011. Zurich Financial’s spending jumped from $1.8 million in 2006 to $6.8 million in 2011. MetLife increased lobbying spending from $4.2 million to $6.5 million during the same period. 

Computers and internet

Total lobbying spending: $126.5 million

Although computer and internet industries are not highly regulated, firms in these industries have significantly increased lobbying spending in recent years. Unlike telecommunications providers, information service providers, such as search engines, are unregulated and do not fall within the scope of the Federal Communications Commission (FCC) or any other governmental agency. The level of regulation is light for these firms; however, regulation is expected to increase as copyright and trademark infringement claims increase against industry segment participants. Similarly, computer manufacturers face minimal regulatory intervention. Nonetheless, companies like Google Inc., Microsoft Corp. and Hewlett-Packard have increasingly lobbied on issues that include online advertising and online security; personal privacy on the internet; renewable energy; international tax reform; the treatment of corporate earnings outside the United States; the availability of wireless internet access; free speech; and free-trade agreements with South Korea, Colombia and Panama. Recently, Google Inc. focused lobbying efforts to fight proposed changes to online piracy laws.

Lobbying spending by computers and internet-related industries increased at an average annual rate of 1.6% to $126.5 million in the five years to 2011, from $116.8 million in 2006. The top three spenders in this field — Google Inc., Microsoft Corp and Hewlett-Packard — collectively contributed 18.3% of total lobbying spending for computers and internet-related causes in 2011, up from 8.8% in 2006. These three companies combined have significantly increased their lobbying dollars at an average annual rate of 17.5% in the five years to 2011, to total $23.2 million. The companies’ combined revenues increased during the five-year period at an average annual rate of 9.9% to $235.1 billion in 2011.

Individually, Google Inc. increased lobbying spending from about $800,000 in 2006 to $9.7 billion in 2011. Hewlett Packard’s spending jumped from about $780,000 in 2006 to $6.2 billion in 2011. Microsoft Corp., however, decreased its lobbying spending from $8.8 billion in 2006 to $6.2 billion in 2011.

Worth the cost

Although the amount of money spent on lobbying seems high for all of these sectors, it is a mere fraction of their costs. Each sector spends hundreds of millions on lobbying, but generates hundreds of billions in revenue. If this money was not spent on lobbying, it could be put toward operating income, expanding the companies’ profit. However, many of the companies in these sectors believe their lobbying efforts are worth the cost and would not spend money on influencing regulation decisions if they did not believe it would benefit them in the long run.

To download full research reports for the industries discussed in this article, click on the report titles below.

Brand Name Pharmaceutical Manufacturing, Generic Pharmaceutical Manufacturing, Biotechnology, Vitamin & Supplement Manufacturing, Electric Power Transmission, Hydroelectric Power, Nuclear Power, Wind Power, Solar Power, Insurance Brokers & Agencies, Property Casualty & Direct Insurance, Health & Medical Insurance, Life Insurance & Annuities, Search Engines, Wireless Telecommunication Carriers