Procter & Gamble Cuts TV Commitments, but Where Is the Money Going?

On the surface, this post may seem like an advertising story, but when the nation’s largest advertiser decides to exercise its cancellation options for second-quarter TV spending, nearly every TV network should stand up and take notice — and perhaps quiver a bit in their boots. Unfortunately, the dollars that that advertiser, Procter & Gamble, is pulling from the TV market are probably only the beginning. ( A frame from the famous “Talking Stain” spot for Tide-to-Go is at right.)

As media and marketing consultant Jack Myers pointed out last week on HuffPo, “Procter & Gamble ad spending should be closely watched as the bell-weather for how steep the advertising depression will become in 2009 and 2010.” (Myers has been saying the ad industry is in a depression in recent months.)

Yes, as P&G goes, so, generally, goes the advertising market because most marketers revere the company. As one unidentified network exec told Mediaweek: ““We’re keeping an eye on [P&G chief competitor] Unilever. They can either look at this as an opportunity to grab market share, or they can fall in lock-step behind P&G.”

But getting a handle on exactly what P&G is doing is much more difficult to get at then the fact that it is pulling previously committed dollars — to the tune of $50 million to $80 million, by some estimates — out of where those dollars were originally meant to be spent. (P&G never goes on record about such matters.) Cock-eyed optimists (or the current equivalent) believe P&G is keeping the money in TV, claiming that it is pulling out of higher-priced commitments to national broadcast networks in favor of spot TV (commercials that run in local markets).

Another theory, according to Mediaweek, is that P&G wants to put the money in the so-called scatter market, the inventory that the TV networks hold back from the upfront, or early sales cycle, which takes place during the late spring and early summer before each new TV season begins in September. In many years, scatter inventory sells at a premium over upfront inventory, but that looks unlikely this year; according to a report last week from media company TargetCast, in the fourth quarter of last year, the cost of a 30-second TV commercial declined by 15 percent from a year earlier, to to $122,133. (I was dying to get more detail on the report, but TargetCast isn’t talking beyond issuing its report.) Cheaper scatter inventory would let P&G buy much the same programming it had committed to at better rates. Would that piss off the networks? Hell, yeah. But how much leverage do the networks have with an advertiser who spent about $5 billion in advertising last year? You know the answer.

But there’s another possibility: that P&G will keep most or all of the money out of TV entirely. Late last month, during its earnings call, P&G CEO A.J. Lafley said the company was going to maintain its commitment to its marketing budget, but marketing isn’t just TV commercials; it’s couponing, point-of-purchase promotions, and other spending that would more directly impact sales than TV commercials do and Lafley said that, depending on the market, P&G has stepped up its efforts in those areas. However, Lafley also said the company was using its relatively powerful position to gain “share of voice” in the TV market, so maybe, despite the pullout of some TV ad dollars, P&G is putting some of the money back into cheaper TV and putting some money elsewhere. For the TV networks, that’s better than the alternative, particularly because this isn’t just about the dollar value of P&G’s commitment, or lack thereof. As I said above, It’s about whether the rest of the ad market follows P&G’s lead.