October 6, 2005 Product Placement is set to be on the agenda of many advertising and marketing discussions over the next few months thanks to the release of a new report detailing extraordinary growth over recent times in the at best, questionable practice. Movies were the first to do it, but recently television has embraced the new revenue streams - the value of US television placements grew 46.4% to US$1.87 billion in 2004. If you weren’t aware of the depth of the relationship between film, TV and the marketers of the world, this article entitled Why Product Placement Works by advertising psychologist Dr Max Sutherland covers the topic exceptionally well. Product placement is booming – the first-ever report on the size and structure of the product placement market says the total value of the Product Placement Market grew 30% in 2004 to reach US$3.46 billion. Now reports in respectable journals such as the the New York Times and International Herald Tribune are beginning to bring the insidiousness of the practice to the publicattention.
The report, which includes 30 years of historical trends, five years of spending forecasts and more than 75 tables and charts, found that the value of all product placements in media climbed at a compound annual rate of 10.5% since 1974. The product placement market is projected to expand 22.7% to US$4.24 billion in 2005, propelled by strong growth in each of the three major media segments, an increase in paid placements, larger placement deals and deeper penetration of personal video recorders (PVRs), according to PQ Media. Growth over the past 30 years, and particularly during the last five years, was driven mainly by the strong expansion of the television segment, including broadcast, cable and syndication. Download the Executive Summary here.
The value of television product placements soared 46.4% to US$1.87 billion in 2004, and grew at a compound annual rate of 21.5% from 1999 to 2004, as reality television became a haven for numerous product placement deals. Meanwhile, the value of product placements in films rose 14.6% to US$1.25 billion in 2004, and grew 11.4% on a compound annual basis in the 1999-2004 period, according to Product Placement Spending in Media 2005. Spending in the other media segment, including magazines, newspapers, videogames, Internet, music, books and radio, increased 19.9% in 2004 to US$325.8 million, and rose at a compound annual rate of 11.7% from 1999 to 2004.
Product placement's growth is coming at the advertising market's expense, according to PQ Media, as marketers more aggressively migrate dollars away from advertising to alternative media, especially product placement. While product placement spending surged 30.5% in 2004, advertising and marketing expenditures rose just 7% for the year.
"The reasons behind this development are rather simple, but critical to a media industry undergoing rapid change in an era of ad-skipping technologies and accelerating audience fragmentation," said Patrick Quinn, president of PQ Media. "Technological advances, most notably PVRs, and continued audience fragmentation, due to the growing popularity of new media like the Internet and videogames, have led major marketers who are already skeptical of their return on investment in traditional advertising to become even more dispirited with the old means of reaching target audiences."
As a result, leading advertisers are more than ever questioning the relevance of the 30-second television spot, as their messages become scattered in the increasing advertising clutter or omitted altogether by a more empowered consumer who can skip them with the touch of a button, Quinn added. To compensate for this perception of diminished advertising returns, marketers have substantially ratcheted up the role of product placement in their buying strategies. In short, product placement - the seamless integration of products into media - is becoming an integral part of a larger marketing package for many advertisers that includes traditional advertising and alternative marketing such as product placement.
Another key trend in product placement is the growth of paid placements compared with barter and gratis arrangements. Paid placements are defined as those in which the integration is arranged and there is financial compensation; barter agreements also are arranged, but the product serves as compensation; and gratis arrangements are those in which the placement simply happens, often to strengthen a character's profile or to add richness to the plot. The share of paid placements increased from 18% in 1974 to 29.2% in 2004, as competing marketers became more willing to pay for placements on programs, films and other media that are targeted and considered to be attractive properties by their consumers. As a result of the increased pressure to control costs and grow revenue, gratis placements, which accounted for 24.3% of the market's value in 1974, have become much less frequent, accounting for only 6.6% of total spending in 2004. Meanwhile, barter arrangements grew from a 57.7% share in 1974 to 64.2% of the market in 2004, according to Product Placement Spending in Media 2005.
Marketers in the food & beverage, house & home, and health & beauty categories accounted for more than half of all product placements in media in 2004. These placements, however, don't necessarily generate as much integration value as do other categories with products that have higher price points, such as transportation & parts, according to PQ Media. Over half of product placement spending is found in four of the 10 marketing categories: transportation & parts, apparel & accessories, food & beverage, and travel & leisure.
Reality Television Genre a "Godsend"
The emergence of reality television programs over the last five years has been "a godsend to the product placement market," Quinn said, because the success of shows like Survivor and The Apprentice have convinced more marketers that product placement is often a strong supplement to the deteriorating effectiveness of the 30-second spot. As a result, the value of placements on popular shows such as these has exploded into the millions of dollars per placement. Also fueling the growth of television product placements has been the debut of niche instructional cable networks like Food, The Learning Channel and Outdoor, where house, home and garden marketers are pitching there wares.
Meanwhile in films, for many years the primary medium in which product placement was used, the value of placements has continued to increase at a strong rate even though films' share of the overall product placement market has declined. Spending in films has continued an upward trend because marketers covet the elusive 18- to 34-year-old demographic that constitutes half of the movie-going audience. Product placement spending in other media, such as videogames and the Internet, is growing faster than films in part due to the same reason, accentuated by the trend of more time being spent by consumers on these forms of media.
Product Placement Spending Will Continue Upward
PQ Media projects the value of the product placement market will grow at a compound annual rate of 14.9% from 2004 to 2009, reaching US$6.94 billion, as media producers provide more opportunities for marketers and increase their rates to coincide with strengthening demand. Television will increase its share of total product placement spending by almost seven percentage points in the 2004-2009 period to 61.2%. Meanwhile, films will lose six points in the period, hitting 30.2% in 2009, and other media will drop approximately one point to 8.6%, although paid placements in videogames and on the Internet will increase.
PQ Media's Product Placement Spending in Media 2005 report is the culmination of more than six months of primary research conducted by the firm's team of expert media analysts. PQ Media performed dozens of interviews with executives and account managers at advertising and marketing agencies, consumer products companies, and media and entertainment corporations. The firm also analyzed thousands of public and private documents related to product placement and branded entertainment. Based on all of the information and data gleaned from these activities, PQ Media created a massive database that served as the foundation of Product Placement Spending in Media 2005. In addition, this database will support PQ Media's launch later this spring of a newsletter titled Alternative Media Monthly, which will provide cutting-edge research on alternative media branding strategies. Both of these publications are available solely through PQ Media's Web site at www.pqmedia.com and a free copy of the4 Executive Summary can be downloaded here.
A recent article in the Christian Science Monitor (one of our favourite magazines – no, really, it is) also gives the subject some thought.