Television is losing out to other forms of media when it comes to how advertisers are spending their budgets. So much so, that it begs the question whether advertisers really need television when there are other, more cost-effective forms of media available.
ITV – once the one-stop, unmissable shop, which delivered a mass audience for all advertisers – has the most to lose. Not only is it facing, along with the rest of the television industry, a shift in advertising spend to other media, it is also having to compete with a plethora of new channels which had no place on the media map ten years ago.
The multi-channel age is upon us and with it media fragmentation – and arguably higher prices. But in recent months commercial television has suffered falling ad revenues. Admittedly, the burst of the dot-com bubble is partly to blame, as well as fears of a recession wafting in from the US. But a change in advertisers’ priorities is a key factor.
ITV has been particularly hard hit. Its advertising revenues are expected to decline by about 20 per cent year on year by April. Already airtime prices have softened to 1999 levels.
Advertisers have already set out to make the new multi-channel, multi-media world work cost-effectively in preparation for any resurgence of media inflation.
Nestlé Rowntree is among them. Ten years ago the confectionery manufacturer deployed all its marketing funds on TV. That percentage has dropped to 65 per cent for 2001 and is projected to fall to 55 per cent by 2003.
Kit Kat, once the classic TV brand, now also receives support from radio, posters and tactical newspaper ads. Women’s monthly magazines have no place on the schedule because of their comparatively long lead times and high ad production costs.
Innovative media ideas include a tie-up with MSN’s text messaging service, advertising on phone sites and Kit Kat-branded mobile phone games.
Nestlé Rowntree director of marketing Andrew Harrison says: “This change is happening because the cost structure for the TV industry went out of control.”
In the past decade, Harrison claims that the confectionery giant’s key ingredient costs – cocoa butter, milk, packaging and sugar – have fallen. “But TV costs are twice what they were a decade ago,” he says. “We can’t cope with the cost of TV advertising inflating out of all proportion to commercial reality. So we’ll walk away unless we can re-align.”
He adds: “The flat TV market of the past two months should begin to concentrate minds on how the TV industry can capture growth in this changed market – where demand will not outstrip supply and where the larger packaged goods clients are seeking the best returns across the broadest media choice.”
To that end, Harrison would like to see “a new business model” which provides one-stop shops for platform-neutral, cross-media deals. This would involve a single ITV sales house, as well as a consistent method of measuring audience share across all media.
Tuning in to radio’s potential
Nestlé is not the only confectionery manufacturer to look away from the TV screen and switch on to radio.
Radio Advertising Bureau head of media planning Dilupa Nanayakkara says: “In the past year, the increase in spend on radio from top packaged goods advertisers has come from the confectionery sector. Notably, Mars has increased its radio spend by four times over the past five years, and in the same period Nestlé’s has ballooned by an impressive 40 times.”
Mars’ radio spend has increased from &£698,161 for the period March 1996 to February 1997 to &£3.07m for the period March 2000 to February 2001, according to figures from AC Nielsen-MMS. Nestlé’s spend has risen from &£70,318 to &£2.8m during the same period.
Outdoor is also a beneficiary of this shift in media spend. Maiden managing director David Pugh says: “More advertisers are using outdoor because it’s cost effective, and because [the outdoor sector] has produced targeted products and more research.”
Maiden says its bookings for the first quarter of this year are up 22 per cent on the same period last year.
Procter & Gamble has also increased the proportion of its advertising budget (&£122m for 2000) devoted to media outside TV. Just under 15 years ago, the household goods giant was spending 95 per cent of its total budget on TV. Today the figure is less than 80 per cent.
P&G associate director for UK media Bernard Balderston says: “We have broadened our communications base and are not now so focused on TV. This strategy reflects our range of brands and the fact that we need to communicate with people in different ways for these different brands. This means using media other than TV.” And he adds: “TV has also become a very expensive medium.”
P&G spent “significant” amounts of money in the women’s press after the company entered the beauty category in the Eighties. Radio and cinema are also key media for the company – P&G is now among the top 15 advertisers for these two sectors. P&G has also changed the way it spends its TV money, routing money into sponsorship deals, such as that for Emmerdale in 1999.
Diverting TV ad budgets into programme sponsorship is an increasingly popular option for advertisers. They are also taking advantage of the multi-channel market and digital TV.
Flextech sales director Mark Howe says: “The opportunities on TV are the best they have ever been. In multi-channel homes, people watch more TV and there is also active choice. If viewers have choice, the likelihood of them purchasing an advertised product is increased.”
Dominos Pizza has set up a new retail arm on BSkyB’s Open network, and NTL and Telewest’s digital cable platforms. The fast-food chain uses interactive TV ads and its high-profile sponsorship of The Simpsons on Sky to encourage viewers to visit the interactive sites, where they can order a pizza.
Quantum New Media chief executive Paul Longhurst says: “Advertisers don’t have to have ITV. That’s the reality of today’s market. I wouldn’t rule out the effectiveness of ITV, but advertisers can do other things as well. It’s a question of how all these different vehicles are packaged.
“Ten years ago we were all committed to ITV, then along came Channel 4, Sky, cable and Channel 5. The competition gives advertisers other means of effectively delivering advertising.”
Abbey National has taken advantage of digital TV to focus on interactive banking facilities as well as communication of its services. In a recent outburst, Abbey National director of retail e-commerce Ambrose McGinn said he would refuse “to pay for television spots if people are not watching.” But Abbey head of marketing communications Keith Moor says: “We will continue to use TV in the future but we will use it in a different way.”
Elsewhere in television, advertisers are moving away from the ITV stalwart and are using other channels which they claim are more cost-effective in accessing their target audience through spot advertising.
Poor return on investment
Andrew Molle, marketing director at Specsavers Optical Group, says: “We are being forced to work with other media because ITV has recently been offering less for more.”
Molle questions whether pursuing a mass market audience is the right strategy for ITV, and fears that over time the channel will lose the ability to deliver different audience groups.
“I think it’s true to say that the role ITV plays in reaching 1634-year-olds is less important than it used to be. If you are targeting that particular audience there are other channels that can deliver better, both on ability to make an impact and on cost-effectiveness.”
ITV has recognised the threat that multi-channel TV has on its audience share. John Hardie, marketing and commercial director for ITV, says: “We intend to install in viewers’ heads a virtual schedule of what’s on TV. Our mission is to have more event-led programmes such as Popstars, and to make viewers more aware of them.” So far the policy has helped to deliver an audience share of 37.9 per cent at peak time since January, up two per cent on last year.
Carlton Media chief executive Martin Bowley and Granada Enterprises chief executive Mick Desmond have embarked on a tour of creative agencies to promote the benefits of television directly, in particular ITV.
Bowley warns that some advertisers are not getting the ratings that they have been promised on other channels. He says: “Planners think they are buying something, but that is not being delivered by the channel.”
Desmond adds: “If price is the key factor in channel choice, I question it because anyone can buy cheap.” Making the point that event-led programmes, such as Popstars, help to deliver particular audience groups, he says: “ITV has the ability to track target audiences but on scale.”
He also says that ITV companies are willing to work with advertisers to deliver new media opportunities, such as Carlton’s partnership with Sainsbury’s to create the Taste channel and Granada’s tie-up with Boots for health channel Wellbeing. Granada has even managed to persuade B&Q to shift some of its press spend into television by funding the Real DIY Show.
The explosion of media has meant that advertisers have more media choice but it is unlikely that they will divert all their resources away from television. The search will go on for the best package to deliver cost-effective advertising.