Product placement revenue to see steady growth in key UK, French and German TV markets

EL SEGUNDO, USA: Product placement for TV programs in three key European Union (EU) markets, including the United Kingdom, France and Germany, will see steady revenue growth in the years to come as a result of regulations easing across the EU governing the practice, according to a new IHS Screen Digest Advertising Intelligence Service report.

Conducted together with specialist product placement firm Madigan Cluff, the report shows that product placement revenue in the United Kingdom will reach €45 million by 2015, up from just €3 million in 2010. In France, revenue during the same period will hit €72 million, up from €5 million, as shown in the figure. In another major market, Germany, product placement revenue will climb to revenue of €49 million in 2015 from €5 million in 2010 for broadcasters alone, not even including other parts of the value chain.Source: IHS iSuppli, USA.

Product placement enhances television’s ability to deliver integrated branding campaigns for advertisers. To be sure, product placement revenue in the major European television markets—off to a slow start so far—will represent only a tiny portion of total broadcast TV revenues in the short term. And even in five years, placement revenue will account for just a miniscule percentage of the total TV advertising market.

Nonetheless, the practice brings many intangible benefits. More important than the revenue growth directly generated by product placement is the possibility of new business models that can be developed.

“Although product placement has been used in TV productions for years—typically with car and computer brands—only producers, not broadcasters, were benefiting from it,” said Daniel Knapp, head of advertising research, at IHS.

“Today, because of regulatory changes across EU member states, there is potential for converting some of that activity in cash product placement deals with revenue shared between broadcasters and producers and to attract new advertising budgets. And product placement can have a positive impact on non-standard TV advertising revenues, such as branded content and TV sponsorship,” Knapp added.

Furthermore, product placement can be part of an integrated approach in a branding campaign alongside spot advertising, sponsorship deals, in-store marketing campaigns or off-air branded content. For instance, a brand sponsoring a show now also will be able to display its products on the program, immediately enhancing the value of the sponsorship proposition.

An aspect of product placement creating new excitement relates to virtual placement—or the insertion of images by digital means. Virtual insertion makes placements easier to execute, Knapp noted, and can be exchangeable across markets where the content is aired. Some broadcasters remain skeptical, however, and note that insertions could look artificial and not realistic enough, especially in high-definition broadcasts. Virtual placements are most applicable for background objects—such as a can of soda on a table—but become more difficult if objects are deeply integrated into the action.

Legalizing product placement will create opportunity for broadcasters
Since May 2011, product placement has been authorized nearly everywhere in the EU, following member states’ transposition of the Audiovisual Media Services Directive, a set of guidelines for media regulation issued by the European Commission. However, the business models and value chains of paid product placement have yet to be defined and will vary across different regions.

In general, what will remain will be the traditional prop placement in TV programs brokered by specialized placement agencies and often based on no-cash deals with the producer. But product placement can also be promoted as a new standalone, paid-for format. In some countries like the United Kingdom, a commoditized model is in the making, with rate cards based on exposure time showing premium cost compared to spot campaigns. In contrast, German broadcasters are keen to prevent commoditization and favor product placement in a made-to-order format.

Product placement has not been without controversy. Public emotions ran high in the United Kingdom during the run-up leading to the legalization of the practice, and divergent views about how the practice fares among viewers can be found even within the TV advertising industry.

Just the same, product placement is expected to create opportunities for television broadcasters, who until now were mostly cut off from revenue available through the practice. In fact, broadcasters have been the most proactive in promoting new opportunities toward brands and agencies and in aiming to educate the value chain. The German television market is proving especially dynamic in the number of product placement deals made since the beginning of this year.

For now paid product placement revenue is relatively small money compared to the overall TV advertising market. But it is still helpful for the TV economy in its role as incremental income for production companies, with the revenue potentially important in the initial funding of TV programs.

The opportunity for extra revenue is bigger in the non-drama categories, with factual entertainment and reality TV offering the best brand integration opportunities, the report by IHS Screen Digest and Madigan Cluff concludes.

Source: IHS iSuppli, USA.