Product-placement spending poised to hit $4.25 billion in '05

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A 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. Moreover, the growth is coming at media advertising's expense, according to custom-media research firm PQ Media, which conducted the study. While product-placement spending jumped 30.5% in 2004, advertising and marketing expenditures rose just 7% for the year, PQ Media found.

"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," said Patrick Quinn, president of the Stamford, Conn., firm.

According to PQ Media, product-placement spending has increased on average 16% per year since 1999, as marketers have grown wary of ad-skipping technologies. 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. PQ Media estimated the value of product placement has grown nearly 11% each year since 1974, with the expansion of TV into broadcast, cable and syndication driving up numbers.

TV show placements generated $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 programming, the report said.

`A GODSEND'

The emergence of reality programs during the last five years has been "a godsend to the product-placement market," said Mr. Quinn, 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 and Outdoor Channel, where house, home and garden marketers are pitching their wares.

TV 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.

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 add richness to the plot, audio or printed text.

The share of paid placements increased from 19% in 1974 to 29% in 2004, according to the report. 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.

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