Car trouble looms for ITV companies
It will cost car makers an extra 74m this year just to buy the same amount of advertising as they bought last year and to attract the same number of viewers.
It was the single most important figure focusing the minds of car company managing directors when they met to discuss a plan of action to confront media owners – especially the ITV companies – about the growing cost of media inflation.
The cost of television airtime has risen 12 per cent this year and is expected to increase further. For motor manufacturers and other advertisers chasing ABC1 males, the inflation figure is closer to 17 per cent – a combination of a ten per cent increase in the cost of the space plus a seven per cent drop in penetration, as ITV lost viewers.
Even with the Network Centre setting aside an extra 20m as a contingency fund to improve programming, the annual inflation figure is expected to settle at 13 per cent. Manufacturers are paying premium prices for a smaller audience – more than five times the UK rate of inflation.
At the same time, expenditure on car advertising is again running at record levels – expected to top 500m this year, up from 439m in 1994 – as manufacturers compete for a shrinking private retail market.
More disturbing for the ITV companies and sales houses is the fact that the manufacturers are joining forces to launch their attack on media inflation which many say could force them off television. It is an unprecedented co-operative move in a secretive, market-share obsessed industry.
It was decided at a meeting of the Society of Motor Manufacturers & Traders last week that car makers would develop a joint plan of action to combat rising media inflation. The first step is to establish the common concerns of the manufacturers, the second and more difficult step is to create a degree of unanimity sufficient to paper over the every-day hostilities between rival manufacturers.
Media inflation is an issue for all advertisers, great and small. The Incorporated Society of British Advertisers (ISBA) has co-ordinated the lobbying effort to force changes to reduce media inflation.
Most of the car manufacturers are ISBA members. But the car industry initiative illustrates an impatience with the lack of a breakthrough and underlines the urgency felt by manufacturers faced with drawing up their 1996-97 marketing budgets over the next three months. “The feeling is that if a manufacturer takes on the advertising industry alone it will not come off well,” says a source at one manufacturer. “But if the motor industry takes collective action it might come off better.”
Some suggest the rising cost is due to the concentration in the number of media sales houses, which have shrunk from seven to three since the takeover frenzy in the television industry. Advertisers have fewer places to buy TV time and most believe that has contributed to rising costs. On the wilder fringes of hyperbole the media owners have been accused of creating a situation of hyper-inflation not seen since 1923 in the Weimar Republic when people took their wages home in wheelbarrows.
“The main shared concern is that we are all spending a lot more money for far fewer viewers,” says Volkswagen marketing director John Abbott. “As car manufacturers, if we were losing customers we could not put up the price of our product – the same does not appear to be true for the ITV companies.
“There is an obvious demand but I cannot believe demand alone is driving this inflation. It is a bit of a coincidence that we are suffering higher costs now, when there are three sales houses, than when there were seven selling points. For the smaller players who have been on TV in the past it will become increasingly difficult to use the medium – inevitably it will exclude some manufacturers from it altogether.”
Not just the small players. Vauxhall has shifted the emphasis of its advertising into television in the past two years, increasing its television spend by 51 per cent last year to 41m. Even with that it lost market share.
In 1995 – assuming 17 per cent inflation – that volume of advertising would cost an extra 7m. Vauxhall managing director Charlie Golden was instrumental in raising the issue and forcing it onto the SMMT agenda.
“The motoring sector has been among the largest users of television but it is getting to the point where it is difficult to run a cost-effective campaign on TV,” says Vauxhall’s executive sales and marketing director Ian Coomber. “We can’t just keep pouring money into budgets to keep up with the rising costs. If there is no way of bringing this inflation under control, television will become increasingly ineffective and we will have to look at alternative creative solutions.”
That is the ultimate threat the manufacturers hold over the heads of the ITV companies – to pull their ads. But both sides know that car makers need television at least as much, if not more, than television needs them.
Media inflation is just part of a wider problem of the spiralling advertising and marketing costs which have made the car industry look like the Sale of the Century in the past three years. Manufacturers have pursued what at times appears to have been an almost suicidal course. They have contributed to inflation, while at the same time continuing to reduce their profits.
Each time one introduced an offer all the others followed lemming-like, whether it was interest-free credit, passenger air- bags, free mobile phones or a host of other bribes in pursuit of the retail buyer. Not one has been willing, or able, to step back and say “we will not do that” because of the fear of isolation. Estimates suggest that retail sales could fall as much as 15 per cent this year, after dropping six per cent in the final six months of last year.
Many car makers realise that the situation is out of control. But none are willing to be the first to apply the brakes.
For their part, the ITV companies are clearly anxious about the car makers’ initiative. The sales houses have had “private” meetings with both ISBA and the Institute of Practitioners in Advertising but the fact that little seems to have come out of those meetings explains why the car makers are applying some pressure of their own.
“We are taking the situation very seriously,” says Tim Wootton, chief executive TSMS Group, which includes Anglia, Meridian and Ulster. “We are concentrating on improving the product and getting the ratings up. Motor manufacturers value television and we have to make it attractive, but the cost is being driven up by demand.”
TSMS met some motor manufacturers including Rover and Nissan earlier this year. It suggested that they should accept two car ads per commercial break and spread their spend across the year, not just restrict it to the congested summer months.
The car makers have shown little enthusiasm for these changes. They favour the creation of Channel 5, increased minutage to lengthen breaks and the shifting of all public-service programming to the BBC. But these are all long-term proposals; in the short term they want improved ratings and inflation in line with the national average.
For most manufacturers “shifting metal” is the name of the game. But the game is getting more expensive. If the car makers can unite for long enough they could win concessions from the media owners. If they do, other advertisers will demand the same treatment.
