The Trouble with Tie-Ins

Marketers are shying away from pricey Hollywood deals

PepsiCo Inc. (PEP ) used to love to spend its summers at the movies. When George Lucas' Star Wars: Episode I--The Phantom Menace came out in 1999, the company ponied up hundreds of millions of dollars to tie in its soda brands. Not anymore. This year, the marketer's biggest Hollywood plunge consists of a single TV spot for Pepsi Twist featuring Austin Powers star Mike Myers. "The idea was to be smarter with our dollars and keep the program simple," says Dawn Hudson, PepsiCo's senior vice-president for marketing.

Welcome to Hollywood's version of the ad drought. The same force that's producing thinner magazines and a tougher sell for commercial airtime on TV has hit the movies. In the '90s, studios came to depend on big campaigns and big bucks from marketers eager to tap into a hot movie. This year, though, advertisers are scaling back their movie-marketing ambitions. Chalk it up to tighter ad budgets and the tepid sales boost from "can't-miss" properties such as Phantom Menace. We've had to adjust to a new reality," says Brad Globe, head of consumer products for Dreamworks SKG.

To get sponsors this year, studios are having to give old partners more for their money and move down the marketing food chain to find new ones. With summer-movie marketing budgets often breaking $50 million, studios urgently need someone else to help carry the load--even if that means second-tier fast-food chains and the operator of those supermarket gizmos that exchange your spare coins for bills. "A lot of companies are jumping in that have not really done it before," says Alyse M. Kobin, president of tie-in specialist Kobin Enterprises Ltd.

Yum! Brands Inc., whose Taco Bell unit was among those burned by Phantom Menace, bailed out of Hollywood altogether this year. Instead, it's giving its menu offerings starring roles in ads for its KFC, Pizza Hut, and Taco Bell chains. "It's less risky than tying in with a movie that may or may not be a hit--or might not help your product, even if it is," says Yum! Vice-President Amy Sherwood.

Other marketers are demanding a lot more for their money. Dreamworks assembled a blue-chip list of sponsors for Spirit: Stallion of the Cimarron that includes national TV campaigns from Burger King and Baskin-Robbins. But Hollywood insiders say Dreamworks had to loosen licensing restrictions on its movie characters, offer more images for ads, and in some cases throw in tie-ins to release of the DVD as part of the deal.

Some movies have had to search further afield for new sponsors. Sony Corp. (SNE ) snared a few tie-in regulars, such as Kellogg, Hershey, and Reebok, and a deep-pocketed newcomer, Cingular Wireless, for its megahit, Spider-Man. But it also signed up CKE Restaurants Inc.'s regional burger chains, Hardee's and Carl's Jr. It even cut a deal with Coinstar Inc. in which the Bellevue (Wash.) company is placing movie ads on its 10,000 supermarket-based coin-exchanging machines. But this deal will only get Sony so far. Coinstar's (CSTR ) spending on Spider-Man is unlikely to exceed a couple of million dollars. Spider-Man may be climbing the box-office charts, but even he isn't strong enough to pull in the marketing giants.

By Ronald Grover in Los Angeles, with Gerry Khermouch in New York

— With assistance by Gerry Khermouch

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