Martin Sorrell and others like him have every cause to be concerned about media inflation. Chief executive of WPP Group, his clients include some of the UK’s biggest TV advertisers, among them Ford, Unilever, IBM, Kimberly-Clark, Kodak, Nestlé and Warner Lambert.
This week WPP’s media operation MindShare attempts to take the high ground in the continuing debate over how clients can best beat media inflation.
It has published a new survey investigating inflationary issues across all media and developed a detailed model it claims will allow it to forecast advertising revenues and inflation over the medium to long term. It also held a debate on the same subject this week with speakers who included Richard Eyre, chief executive of ITV; Lorna Tilbian, a media analyst at Panmure Gordon; and Bob Wootton, director of media and advertising affairs at the Incorporated Society of British Advertisers.
To some people’s way of thinking, MindShare has got its timing wrong. Critics say that media inflation in the UK is not the bugbear it once was because of the revitalisation of ITV.
However, Simeon Duckworth, co-author of the MindShare report Media Inflation, points out: “Inflation may be calmer at the moment but it’s not going away. It’s always going to be with us.”
He argues that although inflation is lower now partly through a slight dip in demand for TV airtime after a slowdown in consumer spending it will return with a vengeance as more advertisers adopt TV, precisely because of the lower inflation which now prevails.
According to MindShare’s survey, UK TV inflation will rise from 3.2 per cent this year to 4.4 per cent next year and 5.1 per cent in the year 2001. At the moment, retail price inflation is hovering around 2.5 per cent. The increase in media demand drives up inflation because it outstrips the growth in media supply or more specifically, the supply of good quality opportunities to communicate with the desired audience.
Total TV viewing time has hardly budged in 20 years, despite the exponential growth in channel choice. So the only way commercial TV audiences can increase is in one direction by stealing share from the BBC.
What, failing this, can be done to beat media inflation?
There has been no shortage of deflationary proposals from the clients themselves. Through their trade body ISBA, heavyhitters such as Procter & Gamble, Mars, Unilever and SmithKline Beecham have pressed for measures mainly designed to increase media supply. These include adding extra minutage to ITV and putting advertising on the BBC.
It is advertisers such as these which have lost the most from the fragmenting TV market ironic considering some were founder investors in commercial television.
In the early days of commercial TV, big advertisers could buy, to use a highly simplified model, a notional 100 people for 100. That audience would include a number of young and upmarket consumers as well as housewives. The small advertisers could not afford the entry price to TV, and probably would not have been interested in talking to 80 per cent of that mass audience, who would never have been persuaded to buy their products.
Nowadays that single mass audience has splintered into two groupings of roughly 80 people and 20 people, as a result of new TV channels coming on air. The biggest single audience you can reach is now smaller (80 people not 100), and that contains a bigger proportion of older, more downmarket consumers. The younger part of the audience has migrated to niche channels. Being smaller, these command a lower entry price, which has encouraged new advertisers to join the market. All well and good so far, but the influx of new advertisers has effectively boosted prices, meaning the media owner can charge more for reaching those 20 people, plus the big advertiser receives a smaller proportionate discount. In this simplified version of events, the big client ends up paying 80 plus perhaps 25 105 for reaching the same number of people.
And that argument does not even broach the sore subject of advertising wastage, where advertisers are paying for multichannel spots which overlap audiences. In the face of these rising costs it is small wonder the big advertisers are constantly searching for drastic solutions. But according to MindShare, media inflation will not be cured by sweeping changes.
Duckworth says: “There is no regulatory magic wand that will make media inflation disappear.”
The report argues that a one-off increase in minutage will at best bring down prices in the short term. And this might be because the advertising spots become less valuable rather in the way that when governments print more money, the currency becomes devalued.
In any case, over time advertiser demand for TV airtime would soak up any new supply, neutralising its positive impact on media costs.
Mandy Pooler, MindShare chief executive, says: “This report finally proves that the best way to beat media inflation is not an extra few minutes of television, but effective media planning and buying.”
However Jim Marshall, chief executive of MediaVest, argues that this is too idealistic.
He says: “There’s an element of smarter planning and buying involved, but you’re never going to stop all the effects of inflation. An agency’s ability to buy volume will always have the edge over planning. Ultimately it’s about being the preferred customer for the media owner, and using your leverage to negotiate a better deal.”
At the other end of the spectrum James Walker, an ex-WPP employee and now a director of consultancy Edge Marketing, claims: “Planning and consumer insight are more important than buying.”
He says media inflation is a dead issue, and that rather than dwelling on the negative impact of fragmentation, the bigger advertisers should rejoice in the new opportunities it offers.
Walker adds: “Huge cost efficiencies can be made by better, more insightful media planning, but this is labour intensive and has to be paid for.”
Which raises the thorny problem of agency renumeration. Mark Cranmer, managing director of Motive Communications, explains why agencies hate to see deals done on price: “Most media operators believe that in a market where there is increasing flexibility and a growing need to understand the consumer, driving a deal purely on price makes media seem a simple commodity. Yet it’s anything but.”
Interestingly, MindShare is one of those agencies which in the past has been criticised for supplying clients on low rates of commission, notably Thomson Holidays.
It remains to be seen whether its latest piece of research, with an emphasis on effectiveness, marks a calculated shift away from the commodity position.