• by David Kaplan , March 30, 2005

While the value of product placement has been a tough nut for the media industry to crack, PQ Media, a marketing researcher that has put together a brief history of the practice, is putting the net worth of the overall product placement market last year at $3.46 billion--an increase of 30.5 percent over 2003. And according to its projections, that's only the beginning.

PQ Media is also saying that product placement grew at a compound annual rate of 16.3 percent from 1999 to 2004. And since 1974--when the company began tracking product placement spending--the value of product placement rose at a compound annual rate of 10.5 percent.

Both in 2004 and in the 1999-2004 period, product placement was driven primarily by a robust TV marketplace. The value of television product placements increased 46.4 percent to $1.87 billion in 2004, and grew at a compound annual rate of 21.5 percent from 1999 to 2004.

Meanwhile, in films, where product placement gained prominence in the mid-1970s, the report notes that the value of product placements rose 14.6 percent to $1.26 billion in 2004. And because of the pull of TV, product placement grew at a compound annual rate of 11.4 percent in the 1999-2004 period.

PQ Media--based in Stamford, Conn. and named for its Principal, Patrick Quinn--noted that the market's growth has coincided with the recent trend of marketing dollars migrating away from traditional advertising to alternative marketing methods, especially product placement.

"And due to the large share of barter arrangements, product placement growth has not been hampered as severely as advertising by economic downturns," the report said. "Since 1974, the value of product placement expenditures has outperformed the economy almost threefold, driven by significant gains in product placement on television."

The share of product placement spending on television has risen from 37.1 percent in 1974 to 54.3 percent in 2004, with a 10-point surge coming in just three years, from 2001 to 2004. In addition, marketers are turning to other media, such as video games and the Internet, which attract the coveted 18- to-34-year-old demographic.

Product placement spending in other media increased 19.9 percent to $325.8 million in 2004, and grew at a compound annual rate of 11.7 percent from 1999 to 2004.

Another key trend in product placement is the growth of paid integrations compared with barter and gratis placements. The share of paid placements increased from 19 percent in 1974 to 29 percent in 2004. Competing marketers are willing to pay for placements on programs, films, or other media that are extremely targeted and considered to be hot properties by their niche consumers.

As a result of the increased pressure to control costs and grow revenue, gratis placements--which accounted for 25 percent of the market's value in 1974--have become much less frequent, accounting for only 7 percent of total spending in 2004. Marketers in the food & beverage, house & home, and health & beauty categories account for more than half of all the physical product placements. These placements, however, don't necessarily generate as much integration value as do other categories with products that have higher price points, such as transportation and parts.

In terms of where it's likely to go, PQ Media's report projects the value of product placements in all media to increase 22.7 percent to $4.24 billion in 2005, driven by strong growth in each of the three macro media segments, an increase in paid placements, the expectation of larger placement deals, and the expansion of PVR penetration.

Television placement spending, the largest media segment, will rise 30 percent to $2.44 billion in 2005, while film placement expenditures will climb 13 percent to $1.42 billion, with other media seeing an increase of 18.1 percent to $384.9 million. Television placements will account for 57.5 percent of the total value of the product placement market in 2005, followed by films at 33.4 percent and other media at 9.1 percent.