Austerity Budget Could Carve More Than $150M Out of UK Ad Market

Government Was Biggest Advertiser in Country, but Spending Now Seen as a Luxury

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LONDON -- As the U.K.'s top advertiser, with a roster of hundreds of agencies, the government's ad budget, to be slashed 50%, is one of the big victims of the Conservative-led coalition government's ruthless cost-cutting.

The Central Office of Information was established in 1946 out of the wartime Ministry of Information. Its role is to work with government departments by acting as consultant, procurement officer and project manager for all communications. The CEO is usually a senior ad-industry exec, and that role is currently filled by Mark Lund, who was previously CEO of Delaney Lund Knox Warren, a London agency recently acquired by Lowe Worldwide.

According to Nielsen figures, the COI spent $330 million on advertising in 2009, ahead of Procter & Gamble's $246 million and Unilever's $205 million. The COI itself claims to have spent a total of $845 million in the year ending March 31, 2010, of which $338 million went on above-the-line advertising. The COI also spends heavily on direct marketing, digital marketing, sponsorship, events, publications and PR.

Eight of the top 25 U.K. advertising agencies count the C.O.I. as one of their top five clients, and for the hundreds of agencies on its roster already hit by the recession, the cuts are a big blow.

The COI's many accounts are spread fairly widely around the industry, so few agencies will be pushed toward bankruptcy, but shops like Kindred (part of Geronimo Communications), which relied on the public sector for 77% of its income in 2008, will struggle. And M&C Saatchi won't welcome the axing of the Change4Life healthful-living campaign, which was meant to be worth $120 million over three years.

The ax has been swift. In June 2010, the COI spent 52% less on marketing and advertising than in June 2009.

Francis Maude, minister for the Cabinet Office, has made it clear that much of the COI's work is now considered a luxury. "Big savings can be made quickly by cutting out sometimes wasteful and unnecessary spend on marketing and advertising. The days of spending millions of pounds on expensive projects are over."

Government cuts to the COI's staff are almost as harsh. By the end of November 2010, 40% of its 737 jobs will be gone, with about 450 people remaining. Mr. Lund said, "A leaner COI is in line with new government priorities. Our future will be grounded in continuing to deliver excellent communications in the most cost-efficient and effective way possible."

Under Prime Minister Tony Blair, in power from 1997 to 2007, the COI quickly doubled its ad spending. However, Conservative leader David Cameron, who came to power in May 2010, has pledged to cut the U.K.'s $248 billion deficit by $10 billion this year.

The austerity drive feels almost like a return to the COI's wartime roots, with the ominously titled Efficiency and Reform Group brought in to approve all new campaigns costing more than $40,000. The ERG is only giving the go-ahead to work deemed "essential." That includes recruitment to the armed forces, information about paying taxes, areas where the government has a legal duty to provide information, and campaigns with immediate, measurable benefits to public health and safety.

Exemptions so far include campaigns for road safety, by Leo Burnett, and paying taxes. Initiatives that agency insiders expect to be scrapped have more medium-term goals, like cutting carbon emissions, getting parents more involved with schools and promoting the arts.

One early casualty of the new regime was the Change4Life healthful-living campaign. The government is hoping that marketers such as Coca-Cola, Kraft, Kellogg's, Mars and Nestlé will take greater responsibility for the nation's well-being and fund that effort.

The government plans to shift from TV and print advertising toward more online marketing to save money. Partnerships with brand owners, media owners and civic groups are also cited in the COI annual report as opportunities to communicate directly with the public at a lower cost than traditional media. Mr. Lund said, "In our new world of less money, empowered citizens and a government keen to pass power to the individual, it is the way we must go forward."

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