After all, if the parent company is going to buy the product anyway, it might as well buy it from its own operating unit, thus improving the division's profits and bottom line.
But that logic fails for network TV advertising time.
An analysis of the 1996 and 1995 network TV spending patterns of six broadcast networks' parent companies shows that corporate nepotism was not widespread. And in almost every example of increased spending, it was justified by the network delivering higher ratings, especially against certain demographics.
Fears of intra-corporate ad spending ran rampant when Capital Cities/ABC was acquired by one of its best media customers, Walt Disney Co. The synergies and cultures of the two entertainment Goliaths were so entwined that the deal appeared to be the ultimate in corporate media synergies.
But the merger apparently has done little for the network TV unit.
When Disney acquired ABC, it was spending roughly 37% of its $200 million-plus network TV ad budget on that network. In 1996, the year after its acquisition, ABC's share of Disney's network TV spending fell six points to 31%, according to an analysis of Competitive Media Reporting data.
Admittedly, before the merger Disney already was putting a heavy share of its advertising on ABC. Therefore, an increase of share would have been difficult to accomplish.
More notably, though, ABC's ratings have been on a downward trend since being acquired by Disney-particularly among the young movie-going, video-buying, theme park-attending targets Disney most wants to reach.
Since these viewers have been moving to Fox, UPN and WB networks, Disney effectively would have been reducing its share of voice among its most important targets had it hiked its share of spending on ABC.
abc most expensive
Additionally, ABC historically has been the most expensive network on a cost-per-thousand viewer basis. Without knowing exactly what Disney pays on ABC, it's safe to assume that the rate was near the high end for Disney and most other movie studios. In other words, Disney simply may have found it more efficient to shift dollars to less expensive networks-regardless of corporate affiliations.
In 1996, Disney, which raised its network TV ad expenditures 26% from the previous year, allocated more than $7 million to UPN and WB, about 2.7% of its network TV spending. It also increased spending in double-digit percentages on NBC, CBS and Fox. Meanwhile, ABC received a modest 5.5% boost.
Finally, and perhaps most importantly, while the logic behind Disney earmarking more of its advertising budget to its own TV network division might make good sense for ABC, it wouldn't be sensible for the company's other operating units, all of which must manage their own profit-and-loss sheets.
Disney executives declined to comment for this story, but an executive close to its advertising strategies says this was the overriding factor in Disney's decision to decrease its share of spending on ABC.
"All things being equal, the corporate edict is to go with the corporate division. But all things are never equal in the network television business. It just doesn't make good planning sense for Disney to spend more on ABC right now," says the executive.
The executive says it would also be difficult for corporate management to force other operating units to ignore that rule without also asking them to ignore their own profitability.
"Basically, you would be saying you are no longer responsible for the profit and loss of your division," the executive says. "I don't think that's something Disney wants to do."
PROMOTION VALUE LEARNED
Another theory for Disney's network budget shifts may in fact have to do with the fact that it owns a network.
Just as Disney learned with the incredible marketing power of "The Wonderful World of Disney" on ABC in the 1950s, the marketer is rediscovering the value of promoting itself on ABC via non-advertising time.
ABC aired prime-time specials about the 25th anniversary of Walt Disney World, set episodes of prime-time series "Roseanne," "Step By Step" and "Boy Meets World" at that Disney park, and slotted for this fall a Disney anthology series, hosted by Chairman Michael Eisner.
It's virtually impossible to equate what these shows translate to in terms of paid advertising, but the strategy clearly is having an impact on ABC's share of Disney's budget.
NEWS CORP. PUSH
While ABC's fortunes with Disney likely will improve as its own audience-delivery power does, other networks have profited from their sister divisions.
The most stunning example was a 279% surge in spending by News Corp. on Fox. But that's because Fox delivers the audience News Corp.-specifically, its 20th Century Fox movie studio unit-needs to reach.
In the last year, Fox pushed ahead of ABC and CBS in delivering key young demographics, making it the perfect place to promote films such as 20th's "Independence Day."
News Corp. slashed spending on ABC by 17%.
Accordingly, it's not surprising to see two other studio-dominated network parent companies-Time Warner and Viacom-dramatically increase spending on Fox.
Viacom, which owns Paramount, also cut spending on ABC 5.5%. And Time Warner, which owns Warner Bros., was essentially flat on ABC.
Although the budgets they earmarked for their own fledgling networks-UPN and WB-were small compared to their spending overall, they indicated a willingness to invest in their own start-ups.
The percentage of Viacom's and Time Warner's network TV dollars spent on their network subsidiaries was comparable to the percentages some major advertisers, both within and outside the film industry, spent on these outlets.
In 1996, Time Warner spent 1.6% of its TV dollars on WB, while Viacom put 3.9% of its TV budget on UPN. In comparison, for example, Procter & Gamble Co. put 1.9% of its TV dollars on WB and 2.7% on UPN. Meanwhile, Sony Corp., owner of Columbia Pictures, put 2.7% into WB and 0.9% on UPN.
STUDIOS MAY SHIFT
The fact that film studios are expected to be heavy players in this year's TV upfront-buying season hints that "in-house" ad spending could be more prevalent at Fox, UPN and WB.
The two remaining network-owners, General Electric Co. and Westinghouse Electric Corp., are both industrial companies and therefore are not especially large network TV advertisers.
Of the two, GE spends regularly on network TV, primarily for its consumer appliance and light bulb divisions or through corporate advertising on network Sunday morning news shows.
GE increased spending a significant 65% on NBC in 1996. But, says a GE spokesman, that difference "would be almost entirely" because of the Olympics.
While Westinghouse could hardly be called a network TV advertiser, it uncorked an ironic move: It scrapped its entire network TV budget-a meager $86,500-all of which had been on CBS.
"The reason you don't see any activity now, is because we don't have any other consumer products, other than television itself," says Jack Bergen, senior VP-corporate relations at Westinghouse and the keeper of its corporate advertising budget.
OWES ROLE TO CBS
Ironically, Mr. Bergen notes Westinghouse has only become a big advertiser due to CBS, which spent nearly $55 million on media other than its own airwaves to promote programs and stations in 1996.
"I never imagined I'd be saying that I am one of the largest advertisers in TV Guide," muses Mr. Bergen.
As for Westinghouse's corporate spending, he says the company has suspended all advertising until it finishes spinning off into two separate industrial and media companies. However, Mr. Bergen says, spending would likely resume shortly afterwards.
"It would be confusing to the public for us to advertise right now," he explains.
Mr. Mandese is senior VP-editorial resources for Myers Reports.