Mr. Nugent's $100 million company, backed by Allied Capital, markets 20-plus brands, including Sucrets and Fiberall. Though it's dwarfed even by pre-merger P&G, he's willing to say publicly what some other competitors will only say privately: that adding Gillette may increase P&G's media power to the point of becoming unfair and anti-competitive.
"It severely impacts anybody they compete with," Mr. Nugent said of the merger's media efficiencies. "Procter is combating the Wal-Mart effect with the Procter effect, skipping down Main Street and affecting not only the mom-and-pop shops ... but also all the smaller manufacturers, of which I am now one."
a bigger edge
Even without Gillette, P&G enjoyed a big edge. But adding Gillette makes it bigger, said Mr. Nugent, who noted that similar media efficiencies figured heavily into the 1990s J&J acquisition of Neutrogena that he led.
Executives familiar with P&G deals say the giant buys media as low as 50¢ on the rate-card dollar. That compares to around 70¢ for Unilever, said a former executive of that marketer. Smaller industry players rate yet smaller discounts.
Gillette's 67% surge in measured media through the first nine months of 2004 put it on pace to spend more than $500 million for the year, according to TNS Media Intelligence. That places Gillette close to Unilever in U.S. media spending, which will now be added to P&G's $2.7 billion media clout. The deal creates not only the biggest U.S. and global media buyer, but also the most acute media-buying disparity any industry has ever seen.
General Motors Corp., P&G's fellow multi-billion-dollar media buyer, outspends its next-biggest-spending rival, DaimlerChrysler, by about 50% in the U.S., according to TNS Media Intelligence. Even without Gillette, P&G outspends its biggest rival, J&J, more than 2 to 1 and L'Oreal and Unilever by more than four times. Add Gillette and P&G outspends J&J nearly 3 to 1 and L'Oreal or Unilever by a factor of five.
Account consolidation gives P&G even more clout. P&G a decade ago consolidated all U.S. media buying with Publicis Groupe's Starcom MediaVest Group, which is widely expected to pick up the Gillette business now with WPP Group's MindShare. But J&J and L'Oreal each split their budget between two shops, at least for now, though L'Oreal is exploring a global media review, according to executives familiar with the matter.
Acknowledging that Gillette will produce some media efficiencies, a P&G spokeswoman said: "It's hard to speculate what the effect will be on media spending."
P&G's added clout couldn't come at a better time, said Michael Nathanson, analyst with S.C. Bernstein. That's because its big budget is even more important to media companies now that consolidation and regulatory scrutiny threaten two other major sources of media dollars-telecom marketers and drug companies.
The Gillette deal isn't expected to close until fall, so full media impact won't come until the 2006 upfront. Currently, P&G is letting up on what has been a three-year media-spending spree, taking deep cuts in first- and second-quarter TV options, according to people familiar with the matter. The spokeswoman confirms P&G is making adjustments, but says U.S. TV spending still will be up for the fiscal year that ends June 30.
Adding to what some package-goods manufacturers see as the unfairness of the P&G-Gillette combination is that they're barred from giving price breaks to such big retailers as Wal-Mart under the Robinson-Patman Act unless justified by cost efficiencies. But the 1930 law only covers goods, not services. Courts decades ago rebuffed attempts to extend it to advertising.
P&G's rivals can complain all they want, said Stephen Mahinka, a veteran Washington antitrust lawyer, "but from a consumer-welfare standpoint, which is what really matters, if [P&G] can get advertising at cheaper rates, the possibility exists that they'll pass some of that along to the consumer."
Aside from sheer size, part of P&G's media savings long have come from its willingness to put its marquee name behind new networks and media in return for favorable rates and multi-year deals. P&G also buys heavily discounted inventory, increasingly even rummaging through TV's bargain basement for direct-response time. But it also elbows rivals out of big shows.
"Susan Arnold isn't getting scraps," said a marketing executive of one competitor, referring to P&G's president-global beauty care. He noted that P&G's beauty and personal-care brands have most awards shows locked up, an advantage it could pass on to Gillette brands.
not everyone's worried
Another person familiar with the matter said P&G, as incumbent advertiser in many categories, has used its right of first refusal to block all rivals from the Academy Awards since Revlon dropped out in the late 1990s. But P&G did yield a slot this year, which allowed L'Oreal to become a first-time Academy Awards advertiser on ABC's Feb. 27 broadcast.
P&G and ABC declined to comment on specifics of its buy.
Not all P&G rivals are worried. "They're so big already that I'd be surprised if there are a lot of additional efficiencies," said Derek Gordon, VP-marketing of Clorox Co. His research indicates Clorox's media buying "benchmarks well" against P&G.
Media veterans expect any merger-related efficiencies to come mainly from what Gillette buys. P&G's edge over Gillette, as much as 20¢ on the dollar, according to estimates of some media executives, could mean as much as $100 million in savings-or, as some package-goods analysts expect-an extra $100 million worth of free media annually. That's close to the $110 million Colgate-Palmolive Co. spent on all its brands in 2003, as measured by TNS.
But wringing savings from the Gillette buy could be tough because it's largely in sought-after men's sports events with less negotiating room than most of P&G's traditional female-oriented buys. P&G and other media veterans, however, see opportunity to negotiate bigger savings on lower-rated men's sports and get more "value-added" deals for brand integration and tie-ins involving online, event and retail marketing-a boon as P&G enters the first year of its new communications-planning system.
It's no coincidence that P&G's first-ever Super Bowl buy came in 2004, when CBS had the game and the spot could be folded into a Viacom cross-platform deal now worth more than $500 million annually. The Viacom deal becomes even more crucial for P&G now that it could help leverage better exposure for Gillette around such properties as the NCAA Men's Basketball Tournament and NFL regular-season games.
"If nothing else," said media consultant Erwin Ephron, "they'll do better because they're smarter" than Gillette.