Watching TV will never be the same. For one thing, you may have some trouble telling the shows from the ads. As CBS chief Leslie Moonves recently declared to a large media gathering in New York: "You're going to see a quantum leap in the number of products that are integrated into your television shows this year."
Shows that are paid for embedding brands into the storyline are all the rage. "We're making more and more of those deals, [from] the cars they're driving on CSI to the kind of orange juice they drink on Two and a Half Men.... We're looking to maximize these revenue sources," says Moonves, also co-chief operating officer of media company Viacom (VIA).
The problem is, it might not be that easy for TV networks to reel in the revenues for product placements. Instead, show creators and others are stepping in and grabbing the loot. Case in point: Barely a few weeks after Moonves' grand pronouncement, Mark Burnett, the creator of reality-TV hits such as Survivor and The Apprentice, struck a deal with SLS International (SITI) to feature the company's high-tech speakers on several shows, including Rock Star: INXS on CBS.
MONEY GRAB. Burnett struck a three-year deal and was given options on 1 million shares of SLS stock, currently worth $100,000. He also has an option to buy 2 million more shares, which would give him about 3% of the company. CBS's share of the deal was zip, since SLS decided to forego advertising during the show.
Burnett's deal showcases the grabfest that has started among networks, producers, scriptwriters, and media buyers, all looking for ways to get a piece of the action. "Everybody is trying to control the product-placement space. It's growing fast and involves large amounts of dollars," says Jak Severson, CEO of Madison Road Entertainment, a production/marketing firm that got Mars and Levi's placed on The Apprentice.
TV product placements in 2004 jumped 46.4%, to $1.88 billion, from the previous year, according to research firm PQ Media. And Nielson says the top 10 prime-time TV shows carried 12,867 product placements in the first quarter of this year. That's already more than half the number featured in all of last year.
THE TiVo FACTOR. This kind of jockeying puts added pressure on TV networks, which are already struggling to increase their revenue as advertising dollars migrate to other media, including the Internet and video games. This year, ad dollars committed to upcoming prime-time TV totaled $9.2 billion, down from last year's $9.3 billion, the first time the figure has fallen since 2001.
At the same time, the combined ad revenue at Internet search companies Google (GOOG) and Yahoo! (YHOO) rose 33%, to $9.6 billion, in 2004 and is expected to rival that of the three major TV networks this year.
Then there's the TiVo factor. Digital video recorders like TiVo make it easy for TV viewers to skip commercials. "TiVo has played a big part in the demise of the 30-second commercial -- 80% of people who own TiVos skip commercials," says Frank Zazza, CEO of ITVX, which has developed a metric to measure the quality of product placements. By 2009, 40% of homes will have a DVR, according to Accenture.
DIRECT CONNECTION. At the same time, advertisers are finally cutting back on spending after years of questioning the effectiveness of TV ads. The largest U.S. advertiser, Procter & Gamble (PG), which has an ad budget of $3 billion, plans to slash the portion it lays out for TV advertising by 20% and will ramp up its participation in product placements. American Express (AMEX) has pared its TV ad budget by 80% in the past decade and now makes its own mini-films.
"After alarming evidence that general-purpose advertising doesn't work, companies are finding that product placements give them the opportunity to create a connection between their brands and their audiences," says Dominique Hanssens, marketing professor at University of California in Los Angeles and executive director of the Marketing Science Institute in Cambridge, Mass.
For advertisers, the integration of their products into popular shows is clearly a great way to reach their audiences in a whole new way. Burnett is working on an idea for The Apprentice which would challenge contestants to come up with a marketing strategy for SLS's latest line of audio speakers, designed and codeveloped by music icon Quincy Jones.
OBTRUSIVE OBJECTS. "They will obviously talk about the superior features and benefits of the product, which is the kind of thing we can never get from a paid ad," says Jennifer Horsfall, business development consultant at SLS International. The episode will air in the first quarter of 2006 and coincide with the launch of SLS speakers for consumers. Up until now, SLS speakers were only sold at concert venues and theaters.
In shows like The Apprentice, brands have a starring role. But product placements that don't fit a storyline and call attention to themselves could wind up being ineffective -- or even backfiring. "If you have a character drinking Old Fashioned Lemonade, instead of plain old lemonade, a sophisticated audience can easily make out that they paid for that, and it's so artificial that it won't work," says Robert Passikoff, president of Brand Keys, a marketing-strategy agency.
That's why brands are shelling out a lot of money for shows where their products are almost a central element in the plot, not just a background detail. Sources say Burnett asks upwards of $5 million from marketers who want to feature their products in The Apprentice and collected $16 million from Toyota Motors for placement on another reality show, The Contender. Burnett's office declined to comment on these figures.
'OPPORTUNISTIC MOMENT.' Burnett may be leading the way, but others are following fast. Ben Silverman, CEO of production company Reveille, has just finished producing his reality show Meet Mr. Mom for NBC. Silverman approached Clorox (CLX), Nissan, State Farm Insurance, and J.C. Penney (JCP) to underwrite the show and help him meet production costs. These brands will be integrated within the program.
"This is an opportunistic moment for entrepreneurial companies to step in and participate," says Silverman, who earlier this year decided to regain control of his company from NBC Universal, in part so that he could get a bigger piece of the action from brands. Silverman has developed and produced other reality shows where he worked with brands directly, such as The Restaurant.
In some newer deals, brands come in at the very beginning and marketers, producers, and creative writers band together. For instance, Madison Road Entertainment, which was formed in late 2003 to integrate products into TV shows, has now teamed up with Imagine TV and Magical Elves Productions to produce Treasure Hunters, a new reality TV show for NBC in which competitors try to solve a complex puzzle.
CLOSING THE GAP. In the show, which airs early next year, Madison Road's role will be to broker what brands will be worked into the story, and the company's executives want to be able to share the booty with everyone -- from writers to developers. "While we're the architects of the relationship, all parties will benefit," says Severson of Madison Road. "We want to make sure that the creative side gets a fair share of the pie, too."
And FremantleMedia, which produces American Idol, one of the most successful reality-TV shows, renegotiates its contracts with its top three sponsors -- Coca-Cola (KO), Ford (F), and Cingular Wireless -- every year. It has managed to strike a better deal for itself each time , but the company admits that the networks still take the lion's share, since the product-placement deals are packaged along with 30-second commercials that air during the program. "But the gap is starting to close," says Keith Hindle, vice-president of integrated marketing at FremantleMedia.
Creative producers and network bosses have always had a love-hate relationship. Both sides have always needed the other, and still do. But now the creative side sees an opening it can use to its advantage. Obviously, it's not just TV shows that are changing. Money, too, is changing hands -- just not the hands we expected.