COSTS TO MAKE TV AD NEARS QUARTER-MILLION

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Commercial production costs, on the upswing since the ad industry began formally tracking them seven years ago, have broken through the roof.

For the first time, the average cost of making a national TV commercial has exceeded the $200,000 mark. Equally significant is that the inflation rate for commercial production has nearly doubled in the past year.

The average cost of producing a national spot jumped 13% in 1993 to $222,000, according to the soon-to-be-released American Association of Advertising Agencies 1993 cost survey obtained by Advertising Age.

That's a stupefying statistic considering the survey has shown only moderate single-digit increases in recent years, including 7% in the 1992 survey.

"There's no intelligent reason for it," said David Perry, exec VP-director of broadcast production for Saatchi & Saatchi Advertising, New York, and chairman of the Four A's broadcast production committee. "The trend has been that we are making fewer commercials as an industry. Therefore, we must be investing more in fewer spots."

Equally perplexed was Jack Walp, director of advertising and production at Gillette Co. and chairman of the Association of National Advertisers' production management committee.

"It goes up every year, but there was a big bump in this last year and I'm not sure, quite honestly, what the reason was," he said. "Clearly, inflation has not been terribly high-running about 3% a year."

While many advertisers and production houses take exception with some of the Four A's methodology, all sides agree it's a useful barometer of cost trends.

Last year, the ANA retabulated the Four A's data for 1992 to analyze only 30-second spots produced in New York and Los Angeles, which the ANA considers the "real world" of commercial production for national advertisers. The Four A's factors in all national spots, regardless of their length and the region they're produced in.

The ANA method estimated the national average was $235,000, about 20% higher than the Four A's estimate.

Ad Age has also learned the ANA's reinterpretation of the Four As' data indicated a growing discrepancy. According to the ANA estimate, the average cost of making a national TV spot in 1993 was $274,000, a 16% increase over the ANA's '92 estimate and 23% higher than the Four A's '93 estimate.

What the ad industry is doing about the rampant inflation of commercial production isn't entirely clear. But everyone is miffed.

"Why do we accept these [increases] as a given? We let it [happen]. We don't demand otherwise," said Jan Soderstrom, senior VP-advertising and promotion at Visa USA and incoming chairman of the ANA. "It's part of the old thinking and the fact that there's no incentive to agencies from a compensation standpoint to come in with lower prices."

She said Visa is "as guilty as everyone else" when it comes to production cost controls but is advocating measures to discipline the process, including a possible bonus system for agencies that bring shoots in under or at budget.

Other major national advertisers have taken steps to control the process.

Procter & Gamble Co., for example, switched last year from a traditional cost-plus-fixed-fee system that it had championed for years to a fixed-bid system.

Under such a system, a production company agrees to produce a commercial at a set budget unless major revisions are made to specifications by advertiser and agency. If the commercial shoot runs over cost, it comes out of the production company's margin.

However, George Bragg, president of George Bragg & Associates, a Darien, Conn.-based advertising production cost consultant, said: "The firm bid is increasing, yet prices are going up. It's not saving any money by shooting with firm bids if nobody holds the production company to it.

Meanwhile, production company margins have been slipping.

"Production company markups are down across the board," said Daniel Kaye, vice chairman of Ernst Van-Praag, New York, a commercial production cost consultancy. "Five years ago, it was unusual to see anything below 35%. Now we are seeing a lot of markups down below 30%."

Mr. Kaye said many production companies are figuring ways of building in extra costs to provide a cushion on fixed-bid projects and that such arrangements need to be scrutinized closely to control costs.

"A lot of people are going to be very upset" by the Four A's double-digit estimate, said Al Stauderman, president of Bird Bonette Stauderman, another commercial production cost specialist in Westport, Conn.

He said many advertisers are seeking to control production costs by farming work out of the expensive New York and Los Angeles production communities.

"Toronto, Canada, is probably the No. 3 market now. And a lot of work is going to Minneapolis and Florida," he said. "Within the past five years, a lot of new production complexes have been built around Disney World."

Andrea Ruskin, executive producer of Walk On Water Productions, Miami, acknowledged the Florida production community has benefited from more shoots because of "fairly consistent" crew rates. However, she said Florida production houses are also coming under the cost gun from major advertisers.

Just about every side of the issue agrees that more discipline on the part of advertisers, agencies and production companies could go a long way toward reducing production costs.

Gary Levin and Jeffery D. Zbar contributed to this story.

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