• by June 23, 2005

THE FIVE PERCENT SOLUTION -- Few would argue that Madison Avenue is a TV-centric neighborhood, especially this time of year, when big ad agencies are haggling with big broadcast and cable networks about exactly how much of their lop-sided share of ad budget the medium will get. And even if it shaves 15 percent off its national TV ad spending, Procter & Gamble will still be placing more than 75 cents of every ad dollar into television. Part of that is legacy, and P&G has signaled it is committed to correcting that, though we suspect it has more to do with correcting an imbalance that has grown within its national TV ad budgets. When last we checked, P&G was spending more than $1 billion on cable TV networks - more than it spends on broadcast networks - and far more than it spends on any other medium. That's probably too much. And even the cable TV industry recognized that, which is why you don't see cable networks panicking over P&G's gesture in their upfront negotiations.

They know the upfront is softer than they had hoped, but not because of P&G's cutbacks, or General Motors immobilization. It's because there aren't any hot new categories stimulating the marketplace. No new wireless communications services. No new pharmaceutical drug categories. In fact, many of the categories that had been stimulating growth over the past several years, are beginning to flatten out, or cutback. Wireless is still strong, but the direct-to-consumer drug brands are so deathly afraid of government interference that they are purposely pulling back on their advertising throttle lest they become the next regulatory target. That's prudent, and ultimately good for the long-term health of the ad business, and especially for TV.

But couple that with an equally cautious food marketing industry, and weak performance by Hollywood movie studios, and a near meltdown in Detroit, and you've got the makings for a weak advertising demand. Barring the introduction of a new category, things were bound to slow down.

Actually, we're more concerned by some of the weak near-term signals being exhibited by some major media, especially newspapers, the business press, magazines and the local TV marketplace. The signals have weakened enough that Wall Street ad diva Lauren Rich Fine has termed the market "tepid" and has once again downgraded Merrill Lynch's ad outlook - for like the umpteenth time in a row.

What does all this mean? It means there's still a great deal of uncertainty, and that those initial signs of an advertising rush put out by ABC and CBS during the early days of the 2005-06 prime-time upfront, aren't nearly as sustainable as many had hoped. It's now evident that the 2005-06 prime-time upfront will fall by at least several hundred million dollars from the 2004-05 marketplace. The question is how much, if any of that money is leaving the medium? Or how much of it is simply being held back for reasons other than a genuine reallocation of the media mix? No one knows for sure, and we probably won't know until sometime next year. But the early hunches are that it's a combination of both.

Take P&G, for example, aside from growing way too dependent on TV, the alpha marketer simply had its own financial pressures stemming from higher energy costs, not to mention its recent acquisition of Gillette. And the easiest place to cut from was its massive ad budget. And the area of with the greatest largesse was - you guessed it - television.

That's not to say there isn't a more fundamental shift taking place in the media mix. There is. It's just not happening with the drama some non-TV media folks would like to see. Look at other marketers who've weaned themselves off the boob... tube. Companies like American Express, or ones like Unilever that are still trying to make the transition. It doesn't happen in one year. It happens in increments. Usually about 5 percent per year. And we suspect that when you factor out all of the internal financial management issues, and the cable TV "right-sizing" issues P&G is going through, the bottom line effect of its TV cutbacks will amount to about a 5 percent "organic" reduction in its U.S. television advertising spending. But we also suspect it will make another 5 percent cut next year. And the year after that. And so on, and so on, until it reaches a point where TV is in line with the relative media cost efficiency and marketing effectiveness of other media in the mix - especially some of the newer media, which are finally beginning to demonstrate the kind of ROI people in the traditional media have been preaching for eons.

With apologies to former Ted Bates media guru Walter Reichel, let's call this process the "5 percent solution." But unlike Reichel's early 1980s recommendation that marketers begin allocating 5 percent of their TV budgets into cable TV, this solution calls for marketers to reallocate 5 percent of their total TV budgets into non-TV media. And we don't just mean online. Depending on the product and category, we can foresee tremendous upside for magazine marketing efficiencies, radio and even outdoor. But online and its still adolescent younger cousin - interactive TV - are the most logical beneficiaries.

What does all this mean? It means that TV's days as the "base buy" are numbered. Some marketers operating in certain categories will linger on, planning their advertising budgets with TV as a base and layering other media on top of that. But increasingly, others will do it on the basis of the relative communications effectiveness of the medium for a brand and its communications goal. In fact, for certain brands, TV no longer is the base buy. The Internet already is.