Czech Business Weekly

Technological advances have caused an industry-wide shift in the business model for television advertising, but the changes are frowned upon by caustic critics

By Marius Dragomir

4 December 2006

When James Bond hit the big screen in mid-November, hordes of marketers closely watched the movie’s box-office. The remake of “Casino Royale” features six prominent brands – Heineken, Ford, Smirnoff, Sony Electronics, Sony Ericsson and Omega – that reportedly spent a combined $100 million (Kč 2.1 billion/€ 75 million) on the promotional backing of the movie.

Recently, the EU proposed sweeping changes intended to usher in a legal foundation for “TV product placement,” the casual use of brand products on television, by relaxing the TV industry’s long-standing advertising rules. TV product placement is a newly evolved advertising model, seemingly influenced by the reality TV concept.

Product placement isn’t new in the movie industry. In 2003, Samsung reportedly paid $100 million to have its SPH-N270 phone used in “The Matrix Reloaded.” In the U.S., product placement is a large source of income for the TV and movie industries, generating $3.5 billion in 2004, according to industry estimates cited by the EU. The practice, though still illegal in most European countries, is likely to change soon. In coming months, the EU is slated to approve a new version of the Television Without Frontier Directive, the dominant piece of audiovisual legislation that will lift the ban on television product placement across the EU.

TV industry personnel and advertising agents have welcomed the move with open arms, as they expect product placement to significantly boost ad revenues in the country, and open new marketing channels. “There’s a big future in this,” said Vladimír Jurásek from the sales support department of CME Media Services, the ad sales house for TV Nova. “It will be a new source of money for TV stations.” Legalizing product placement will be “highly appreciated” by advertisers, said Jiří Mikeš, former head of the Association of Communication Agencies (AKA), the main ad industry body. “Now, TV stations are very cautious, and are afraid of mentioning or showing any brand on the screens,” said Mikeš who teaches marketing and communication at the University of Economics in Prague (VŠE).

According to Mikeš, product placement will help TV stations produce better programs. “If you’re making a documentary in Africa, you should be able to show the logo of the car company that’s providing the auto, the logo of airlines transporting you there, etc. Why not?” Mikeš said.

He added that product placement will be affordable only for large advertisers. ‘It’s not for small firms because product placement is more expensive than the usual commercials.” Advertising experts say that product placement usually costs more than traditional advertising, but wouldn’t estimate by how much.

“Once [product placement] is regulated, the prices for product placement will be affected,” said Vladan Crha, director for corporate communications at mobile operator Vodafone Czech Republic. “Prices might decrease or increase based on results that product placement produces.” Currently, TV Nova, for example, charges nearly Kč 250,000 for a 30-second prime time spot.

Some advertisers say that product promotion will depend on the product. “It’s part of the communication mix, but it’s not primary in our communication strategy,” said Vodafone’s Crha. “We prefer to have a more integrated approach.” Vodafone was the fourth largest advertiser in the first six months of 2006, with Kč 437.4 million in ad spending, according to data from TNS A-Connect.

Jaroslav Černý, spokesman for carmaker Škoda Auto, said the company will consider using this approach in the future. But Martin Walter, corporate affairs manager with the chocolate maker Nestlé in the Czech Republic and Slovakia, said they haven’t made any immediate plans as it will take time for the directive to move into Czech legislation. He added that Nestle hasn’t used product placement in movies. “Our preference is to use more efficient ways to reach consumers,” Walter said. Nestle was the largest ad spender in the first half of this year, with a total of Kč 755.5 million pumped in advertising.

Philip Pěč, executive creative director and partner with ad agency Malá agentura, said that product placement is “a great extension to the variety of marketing tools” that can “significantly” increase brand awareness. By incorporating a brand in something a consumer chooses to watch, product placement has more chance to reach viewers.

New realities

Amended last in 1997, the EU has been revising the television directive for the past two years. Current legislation forbids product placement on news and children’s programming, and must be clearly labeled as advertising. In mid-November, the EU countries agreed on a quasi-final form that permits product placement on TV. In December, the European Parliament will vote on the legislation and it will be on the EU council table next year.

Now, in most European countries including the Czech Republic, the practice is labeled as surreptitious advertising. In Germany, Denmark, Lichtenstein and Greece, product placement is allowed if it can be justified for editorial reasons.

Although product placement is strictly prohibited on TV stations in the Czech Republic, the practice is occasionally used, according to information from media buying agencies. “TV stations will definitely become more relaxed with this new regulation,” Jurásek said, “and it should be introduced as soon as possible to bring order in the industry.”

Once legalized, media buyers expect companies such as computer makers, mobile phone producers and car manufacturers to use product placement extensively. However, some caution that the idea could be easily abused with products inundating TV shows. “It’s a gray zone,” said Vodafone’s Crha. “Just like traditional PR techniques, there’s no clear border for product placement between what’s ‘legal’ and what’s abused.”

Consumer groups across the continent fiercely criticize attempts to legalize product placement and protest against “advertising saturation” on TV channels. Much to the group’s collective dismay, BEUC, the European Consumers’ Association, said in a news release that the EU is set to allow product placement under pressure and lobbying from the advertising industry.

And advertising representatives say that we have to adjust to new realities and accept new marketing practices as normal.

“The times when a media plan consisted only of TV, print and radio are over,” Malá agentura’s Peč said. “Today a brand has many more options to create a bond with the consumer [such as] viral advertising, buzz, word of mouth, etc.” Product placement is only one of them.