When Procter & Gamble, the Worlds Largest Advertiser, Dramatically Cuts TV Spot Buys And Puts the Money Into More Product Placement Then You Know the Television Advertising Revolution Is Underway. Goodbye to the 30-Second Ad?

Philip Stone June 15, 2005

Procter & Gamble (P&G) has just moved the earth under Madison Avenue, and the television advertising executives, who knew doom was impending but perhaps not this soon, are still in shock. Television product placement has become so important for P&G that it has cut way back on its upfront TV ad buying for next season, putting the money instead into increasing its already very successful product placement campaigns.

And the advertising industry knows that where P&G walks, others will surely follow.

Jim Stengal, the P&G global marketing officer, hinted earlier this year of the change to come: “There must be and is life beyond the 30-second spot.” And industry icons such as Peter Chermin, News Corp’s president and chief operating officer, recognized this when he told a TV conference recently, “When we put six to eight 30-second commercials back to back, we put up a sign saying, ‘Go away now.’” He was talking about the viewer, but the advertiser obviously got the point, too.

The writing had been on the wall for some time.  If an advertiser is going to spend an average $175,000 for a 30-second network spot then that advertiser wants value for that spend.  But statistics are showing that US homes with digital video recorders are skipping about 70% of the ads, and with sale of those recorders forecast to increase five-fold in five years advertisers are increasingly concerned that money is not getting them the audience it once did.

Global research firm Accenture estimates that the video recorders will cost the TV industry some $27 billion in lost growth over those same five years as advertisers switch their spend into what does capture the attention of the audience – integrating advertising into the actual program itself.

Another way around the digital recorder is live events, especially sports and reality shows. People want to watch those programs live because they want the result “now”, thus they capture the audience, even for the commercials. Look for sports and reality shows to increase their advertising rates as advertisers go more and more for shows that have the “now” influence.

In 2004 P&G was the largest advertiser in the US with an estimated $3 billion ad budget of which more than 80% ($2.5 billion) went to television. But already in Q1 of this year it has cut back its TV spending by 8% to $677.7 million, according to Nielsen Monitor-Plus.

The Myers Report, an advertising industry newsletter, says that P&G was cutting back some 5% on its network buys and up to 25% of its cable buys.  It means P&G may not produce as many 30-second ads, and/or it will cut back on time bought for those ads. Instead it will increase the number of deals it makes with the networks and/or program makers to place its products within the program itself.

It will be no accident, for instance, if the camera clearly shows the box of Tide Laundry detergent in the laundry room, or whether the script calls for one of the stars to say he got rid of dandruff by using Head and Shoulders shampoo.

Nielsen, confirming the trend to product placement, said it increased 27% in Q1, six times the growth rate of network TV ads. The number 1 product placement honor goes not to P&G but rather Coca Cola. Its Coke Classic appeared 1,931 times on TV shows in just those three months.

It is that type of frequency that got the attention of FCC Commissioner Jonathan Adelstein. In a speech in May he said he believed, “failure to disclose who is behind sponsored programming violates the law.” He said there was nothing wrong per se with the concept of product placement, but the public had the right to know under the payola laws that such placements were being bought and were not occurring naturally.

The Federal Trade Commission had ruled to the contrary in February saying there was no obligation to tell consumers that product placement had been paid for within a TV show.

But the debate continues, especially when CBS Chairman Leslie Moonves tells a media convention, “I think you are going to see a quantum leap in the number of products integrated into television shows this year.”

The affect on local television stations is unclear. There was no mention whether P&G was cutting back in local markets although its Q1 overall TV spend was down 8%. But with talk of the disappearance of the staple 30-second ad, and with no clear strategy in sight to stop the fast-forward zippers on the local level, the TV business is beginning to feel some negative vibes. 

 For the first time in a long time there are mutterings that television is not the cash cow it once was. Bob Iger, the incoming president of Disney, said recentlythat Disney has held off investing more in traditional television.  “It is a fragile and vulnerable business in a world that is changing dramatically through technology.” Emmis Broadcasting, the ninth largest radio group in the US, recently announced its intent to seek “strategic alternatives” for its 16 television stations, which could result in their sale.

By and large the public has not complained about product placement, although there are some lobby groups asking for government regulation. . One way to keep the government out of this is to make the placement look as seamless as possible, something which is not necessarily in an advertiser’s blood.

The unanswered question is how long will it take before producers get too greedy and programs take on the look and sound of a supermarket or an automobile dealership.