Procter & Gamble isn't the only packaged-goods advertiser to cut its upfront TV spending commitments for the 2005-06 season. Executives on the buy and sell sides say the top network-TV-spending category has been showing signs of weakness as a whole, with TV adspend increases in the low-single digits during the past couple of years, but this is the first year in recent memory when its upfront spending has been down.
In all, sources estimated that the dominant packaged-goods players cut close to 20 percent of their total upfront commitments compared with last year.
In addition to P&G, major advertisers in the category that are said to have cut their upfront TV ad spending include S.C. Johnson and Reckitt Benckiser. Those two alone cut an estimated $100 million combined, according to agency sources. Add in P&G's cuts, and the tally rises to $350 million. (In total, the networks reaped about $9 billion from this year's upfront negotiations.)
Across the packaged-goods category, estimates are that upfront spending for the broadcast networks, cable and syndication could fall by $650 million from last year's level.
"Packaged goods in general is probably the biggest category that has negatively impacted the upfront market as a whole," said a buyer for one of the bigger spenders in the category.
The upfront, which concluded last month, is where TV advertisers place the bulk of their advertising commitments (roughly 70-80 percent of the total) for the upcoming TV season, which starts in mid-September. The scatter market refers to the remaining spending that takes place after the season begins.
Last year, packaged goods accounted for approximately 18 percent of all network-TV ad sales, at $4.4 billion, ahead of automobile advertising, which was the No. 2 category at 12 percent, or $2.9 billion, according to Nielsen Monitor-Plus. But agency executives and marketing consultants say the last few years have been tough on packaged-goods advertisers, as the costs of doing business have outpaced the companies' ability to pass those costs on to consumers. Higher energy and production costs and the refusal of the so-called "big-box" retailers like Wal-Mart to accept higher prices for the brands they stock have battered profit margins, said Mike Lotito, CEO of MediaIQ, which performs media audits for advertisers. (Lotito declined to disclose MediaIQ's roster but said it includes packaged-goods clients.)
"The packaged-goods industry has been under tremendous pressure for the last three or four years," said Lotito. "The big-box companies have killed these businesses, and the packaged-goods guys are realizing the business may never be as big as it used to be. That means they have to cut costs across the board, from marketing to manufacturing to packaging."
And the economy hasn't helped, said one agency executive who buys ad time for one of the bigger packaged-goods companies. "Nobody wants to believe it, but the economy is not in great shape," the executive said.
Unilever, however, which markets brands such as Surf, Dove, Hellmann's, Axe and others, is not only bucking the category trend, it is also reversing a two-year company slide in ad spending, confirmed vp of media services Brad Simmons. "We're actually running counter trend in that our year-on-year spending is actually up in the upfront," he said.
Unilever was one of the first advertisers to explore new ways to reach consumers. (Its version of communications channel planning was the focus of its 2000 media consolidation review.) Still, Simmons said, "We're looking to grow our brands, and TV continues to be an important medium to do that in."
According to Nielsen Monitor-Plus, Unilever reduced its network TV spending by 16 percent in 2003 and another 13 percent in 2004, to $225 million. The company also slashed its cable budget in both years—5 percent two years ago and another 14 percent last year, to just under $95 million. Also reduced both years were its syndication and spot TV budgets. Between 2002 and 2004, Unilever reduced its total TV spending by just over 25 percent, per Nielsen's tabulations.
Jason Maltby, president and co-executive director at WPP Group's MindShare, Unilever's media agency, declined to comment specifically about the client's ad spending. But he did say, "In the upfront, [total] packaged-goods spending will be down, but nobody knows if they will be down for the total year when you take upfront plus scatter."
But a source familiar with P&G's strategy said the nation's top-spending advertiser is not planning to spend the money cut from its upfront TV budget in the scatter market. The nation's largest advertiser has said it is redirecting spend to other media, including online, out-of-home and point-of-purchase. For P&G, the source said, "this is about two things: finding better ways to reach the consumer, and the economy. So some of it is just gone"—and will remain in the company's coffers.
Both P&G and S.C. Johnson declined to discuss their ad-spending strategies. Reckitt Benckiser officials did not return calls.
Unlike Unilever's, however, P&G's spending in network and cable TV has grown steadily—that is, until this year. For the first, second and third quarters, the company has cut its original TV budget by $240 million, sources said. The Nielsen data show a 25 percent dip for P&G's network spending in the first quarter of 2005, to $168 million, compared with the first quarter of 2004, while cable was flat at $225 million. The company also chopped its syndicated TV ad budget by almost half, to $46 million.
"Procter got all the headlines because of their scale, but the others in the category are following suit and are down 20-plus percent as well," said an agency buyer who represents a major packaged-goods advertiser that made such a cut.
The cuts are coming out of network, cable and syndication. In P&G's case, its cable upfront budget is being cut by $200 million (20 percent) to about $800 million, while its network-TV budget is being reduced $50 million (6 percent) to about $800 million. Some advertisers are taking the whole cut out of cable, because that market is easier to put money back into due to all the excess inventory.
Still, there's no reason to cry for the cable business, which is taking the brunt of the impact from the packaged-goods cutbacks. Agencies still predict that other categories will help the medium get a bump in spending by the time all the upfront dollars are accounted for. "It may not be the $500 million that some were predicting, but they should be up at least $100 million versus a year ago," said one packaged-goods buyer.