Ad Prices Imperil TV

Apr 26, 2004  •  Post A Comment

The U.S. auto industry is revving its engines for the 2005 model year. After a product blitz from Japan and Germany over the past five years, the domestic industry is poised for a comeback with a slew of shiny new models of its own.
J.D. Power and Associates, the Westlake Village, Calif., research firm, said a record 64 all-new car and truck models will be introduced to the U.S. market in model year 2005 by both domestic and import automakers, up from 45 new models in 2004 and 44 in 2003.
While a jump in new car and truck introductions historically has spelled robust upfront sales for television, automotive marketers are warning that continued price increases and audience erosion may force companies to shift even more money from television to other media.
“The simple fact is television-particularly network television-has experienced significant price increases over the last few years and has delivered a fragmented audience, and an audience with less of the influential opinion leaders that are so important to our success,” said Steve Wilhite, Nissan VP of marketing. Mr. Wilhite called last year’s upfront prices “ridiculous.”
“As a result, television will be a smaller part, but an important part, of our media mix going forward,” he said. “Cable will be an alternative to network. We are looking at alternatives in a different way and a more aggressive way than in the past. You’ll see a bigger movement this year [away from the broadcast networks].”
Automakers spent $2.55 billion on network television ads last year, down 2.1 percent from $2.6 billion in 2002, according to TNS Media Intelligence/CMR. That compares with an 11 percent increase in national cable, which saw automotive ad sales spike 12 percent going from $803 million in 2002 to $899 million in 2003. Spot or local TV sales were down 4.9 percent in 2003, falling from $2.5 billion in 2002 to $2.4 billion in 2003.
Mark Kaline, global media manager for Ford Motor Co., said overall television spending will be flat for the No. 2 automaker even though its corporate sales leader, Ford Division, is virtually overhauling its entire car lineup. Mr. Kaline said the automaker is looking at cable and syndication more closely this year.
“The question is how much can I afford to do without losing impact? Because at the end of the day there aren’t many big numbers to speak of in cable and syndication. If you want impact, network is still the place to go for shows like `American Idol’ [and] top sports properties and specials,” Mr. Kaline said.
Mr. Kaline, son of Detroit Tigers Hall of Famer Al Kaline, said he expects upfront negotiations to show a less aggressive pricing strategy by the networks and a healthy market for cable companies. The networks’ fall lineups have “a couple of interesting prospects, some me-too shows and some not-so-interesting prospects,” he said.
Ford’s rival General Motors, which remained television spending leader among all automotives in 2003 with $1.3 billion spent, said in a prepared statement that it will develop its buying strategy as it reads “advertiser demand.”
“The upfront is not an all-or-nothing proposition; if prices are not viewed as favorable, there may be selected vendors we will not do business with on an upfront basis,” said Betsy Lazar, General Motors’ general director, media operations.
“Most broadcast and cable networks take a long-sighted approach to large advertisers like GM, which tend to be with them in strong markets and in weak,” Ms. Lazar said.
Price will continue to be a big consideration for domestic automakers in this year’s upfront. GM, Ford and DaimlerChrysler are slated to spend almost twice as much as importers on sales incentives on a per-vehicle basis. CNW Research, the Bandon, Ore.-based automotive research firm, shows domestic brands are spending an average of $4,131 per vehicle sold on rebates and low-interest loans to lure consumers, while imports are spending about $2,626 per sale.
To cut costs, GM canceled $40 million in television advertising for the second quarter in February. GM’s top executives have been openly critical of network television in the past six months. Gary Cowger, president of GM North America, told Automotive News Congress, an industry seminar, in January that a recent promotion allowing consumers to keep vehicles overnight on 24-hour test drives resulted in 190,000 sales. GM said 35 percent of participants bought vehicles as a result of the program.
“Tell me a television commercial or print ad that has that kind of close rate,” Mr. Cowger said.
Despite such comments, GM said it is still interested in holding on to its sponsorship of such top-rated hits as CBS’s “Survivor,” plus blockbuster sports properties such as the Super Bowl. But Ms. Lazar warned that would only hold true “as long as the pricing remains in line.”
“We think the big ones (the Super Bowl, the Academy Awards) are the place to be but that doesn’t mean the sky is the limit (in terms of price),” said Chris Hamer, director for advertising and sales promotion for Cadillac.
Smaller players such as Mitsubishi Motors North America, which spent $160 million in network and $49 million in national cable last year, are also concerned about price.
“The upfront is the only place in America where you can get less and less and pay more and more,” said Paul Mareski, the new VP of advertising for Mitsubishi North America. Mr. Mareski said he came from Team One, a division of Saatchi & Saatchi, to help broaden Mitsubishi’s appeal and shed its “rock video” marketing image.
“We’d like to be even more aggressive than we were last year with budgets and make an even bigger splash in the market. The question is whether the networks will come with programs that encourage us to put it in their medium, or if it’s better for us to look at alternatives,” Mr. Mareski said.
He said Mitsubishi is interested in shows that resonate well with its buyers. The majority of Mitsubishi’s television budget will go to support its two latest products, the Galant sedan and the Endeavor SUV. The automaker will steer away from reality shows or other programming that “showcases disrespect,” Mr. Mareski said.
Despite the hemming and hawing from the automotive communities, sellers remain optimistic. Greg D’Alba, executive VP, sales and marketing, at CNN, predicted automotive to be the No. 1 growth category for his cable network in this year’s upfront.