Clearing the air: Kraft to slash TV

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Kraft Foods is poised to exercise options to cut up to 50% of its planned first-quarter 2002 TV spending as the country's largest food company shakes up its marketing budget with an eye toward multimedia and cross-media platforms. The shift, coming amid a volatile TV advertising market, is drastic considering that advertisers typically exercise options to cancel only 10% to 17% of their first-quarter buys.

It's believed network TV would be the most heavily impacted by the cuts, although no breakdown was available. In the first quarter 2001, Kraft spent $177 million in TV advertising, according to Taylor Nelson Sofres' CMR, including $94 million on network TV, $46 million in network cable, $21 million on national spot TV and $16 million in syndication. The figures include spending for Nabisco, which Kraft purchased in December.

Kraft's move appears isolated; there are no signs other advertisers are intending wholesale cuts in first-quarter TV buys.

The marketer's deep cut could depress a TV market where prices had shown signs of stabilizing. Networks say fourth-quarter ad prices are at the same level, or slightly higher, than deals made last June in the upfront market, when season-long broadcast deals are struck by advertisers. The upfront witnessed price declines of 3% to 9%.

A Kraft spokeswoman would not comment on media buying or placement, but said, "At any time, we are always making decisions that require making marketing adjustments from one marketing component to another."

While the spokeswoman would not elaborate, executives close to the company said Kraft's move last week to ink major cross-media pacts with AOL Time Warner and Viacom signals a new direction. They believe Kraft is eager to shift focus from standard network TV buys to wider cross-media platforms, including greater emphasis on Internet marketing.

Kraft executives claim the two deals represent "several hundred million dollars." But this figure is about what Kraft currently spends on both AOL Time Warner and Viacom properties, according to companywatchers, who said actual incremental ad revenue is much lower. AOL Time Warner and Viacom will realize about $12 million to $15 million each in new ad revenue from the deal, the executives said.

Lisa McCarthy, senior VP at Viacom Plus, the unit that sells Viacom's diverse media portfolio, wouldn't discuss specifics on its Kraft pact. "From an incremental perspective, I would assume that our numbers are larger [than AOL Time Warner's] because we have a [big] broadcast network, CBS, and they don't," she said. "The name of the game is incremental revenue, but it is also share."

Because of their TV properties, however, AOL Time Warner (CNN, TBS, WB) and Viacom (CBS, MTV, Nickelodeon) stand to feel the impact of Kraft's trims. "They [Kraft] are experiencing some cuts like many advertisers," said Ms. McCarthy. "Because of our partnership, I think we'll get cut less. I can't say we won't be cut at all."

Industry executives said the multimedia giants are in a better position than most since they were able to maintain spending-or even win incremental ad dollars-from Kraft. That's some consolation to AOL Time Warner and Viacom given the tough ad market.

Viacom, which depends on advertising for almost half its revenue, posted a third-quarter loss of $190.4 million. AOL Time Warner reported its ad and commerce revenue for the first nine months of the year rose only 1.8% vs. its earlier forecasts of 18% to 22%. That caused it to reduce revenue projections for the year.

One food-industry executive said Kraft's moves may be aimed at delivering on high earnings expectations of Wall Street after Philip Morris Cos. floated a June initial public offering of Kraft.

But analysts see the TV ad falloff as a shift rather than a slashing of media expenditures. "What's largely made Kraft a successful company is the consistency of its marketing, and so [a decrease in marketing spending] would surprise me," said Credit Suisse First Boston analyst Dave Nelson.

The marketer reported healthy third-quarter volume growth of 3% and, though it did not report absolute spending on advertising, said its "share of voice" had not changed. Despite events of Sept. 11 that worsened a hurting economy, Kraft said it had not seen a consumer shift away from branded products toward store-brand products in the categories in which it competes.

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