$4.25 BILLION TO BE SPENT ON 2005 PRODUCT PLACEMENTS

That Represents 23% Increase From 2004's $3.5 Billion

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LOS ANGELES -- The value of branded entertainment has remained elusive for years, but a new research study estimates that product placement spending will reach a record $4.25 billion this year, a 23% surge over the $3.5 billion spent in 2004.
The PQ Media report provides a historic overview of product placement spending.
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The numbers come from a report released this week by Stamford, Conn.-based custom-media research firm PQ Media. According to the study, product placement spending has increased on average 16% per year since 1999, as marketers have grown wary of ad-skipping technologies and are targeting more of their marketing budgets at reality television programming and media that attract the elusive 18- to 34-year-old demographic.

1999 spending was $1.63 billion

PQ Media estimates that product placement spending totaled $1.63 billion in 1999, with much of the growth since then attributed to an increase in paid placements, larger placement deals and the increased use of digital video recorders, the study said.

The company went even further, saying that the value of product placement is estimated to have grown nearly 11% each year since 1974, with the expansion of TV into broadcast, cable and syndication driving up numbers.

Television experienced the largest surge in spending overall, with TV show placements generating $1.87 billion in 2004, a boost of 46% over the previous year, and 21.5% each year since 1999. Much of that growth is attributed to reality show programming, the report said. The share of product placement spending on TV has risen from 37% in 1974 to 54% in 2004.

Reality shows changed the market

The emergence of reality TV programs during the last five years has been "a godsend to the product placement market," said Patrick Quinn, president of PQ Media, 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. Also fueling growth has been the debut of niche instructional cable networks like Food Network, The Learning Channel and Outdoor Channel, where house, home and garden marketers are pitching their wares.

Television placement spending will rise 30% to $2.44 billion in 2005, the study said, with TV placements accounting for 57.5% of the total value of the product placement market in 2005, followed by films at 33.4% and other media at 9.1%.

Comparably, the value of product placements in films rose nearly 15% to $1.26 billion in 2004, and grew at an annual rate of 11% since 1999. Film placements will escalate 13% to $1.42 billion in 2005.

Spending in the other media segments, including magazines, newspapers, video games, Internet, music, books and radio, increased 20% in 2004 to $325.8 million, and rose at a compound annual rate of nearly 12% from 1999 to 2004.

Migrating away from traditional ads

Product placement’s growth is coming at the advertising market’s expense, according to PQ Media, as marketers more aggressively shift dollars to alternative media. While product placement spending surged 30.5% in 2004, advertising and marketing expenditures rose just 7% for the year.

"Technological advances, most notably PVRs [personal video recorders], and continued audience fragmentation, due to the growing popularity of new media like the Internet and video games, 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,” Mr. Quinn said.

PQ Media breaks product placement into three categories: paid, in which the product placement is arranged and there is financial compensation; barter, which is also arranged, but the product serves as compensation; and gratis, in which the placement simply happens, often to strengthen a character’s profile, or add richness to the plot, audio or printed text.

64% of placements are barter deals

The share of paid placements increased from 19% in 1974 to 29% in 2004, according to the report. “Competing marketers are willing to pay for placements on programs, films or other media that are extremely targeted and considered to be hot properties by their niche consumers,” PQ Media said. As a result of the increased pressure to control costs and grow revenue, gratis placements, which accounted for 25% of the market’s value in 1974, have become much less frequent, accounting for only 7% of total spending in 2004. Meanwhile, barter arrangements grew from a 58% share in 1974 to 64% of the market in 2004.

Among marketers, food and beverage, house and home, and health and beauty companies dominated with more than half of all product placements in media in 2004. However, over half of the actual product placement spending was found in just four of 10 categories: transportation and parts, apparel and accessories, food and beverage, and travel and leisure.

15% annual growth projected

As for the future, PQ Media projects the value of product placements to grow 15% annually from 2004 to 2009, reaching $6.94 billion, as media producers provide more opportunities for marketers and increase their rates to coincide with increased demand. Television will increase its share of total product placement spending to 61%. Meanwhile, films will hit 30% in 2009, and other media will drop to 8.6%, although paid placements in video games and on the Internet will increase.

Barter arrangements will still account for the majority of the product placement market in 2009 at 58.5%.

Transportation and parts, apparel and accessories, food and beverage, and travel and leisure will continue to be the leading marketing categories throughout the next five years, and will account for more than half of all product placement spending in 2009. The fastest-growing marketing categories will be electronics and technology, toys and sporting goods, and media and entertainment.
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