Breaking with its long-standing marketing entertainment partner Walt Disney Co., McDonald's Corp. has struck a non-exclusive two-year worldwide marketing and promotional deal with rival DreamWorks SKG. Marketing executives say the deal could be worth some $100 million in paid media support for the studio. This is a major marketing shift for the fast food restaurant's entertainment marketing efforts, say executives. It ends a 10-year exclusive deal with Walt Disney Co., which will expire at the end of 2006. The DreamWorks deal starts in 2007. "Ten years is a very long time," said Larry Light, global chief marketing officer at McDonald's, in a press conference. "The world changes more than once in 10 years. I don't anticipate that we'll be making 10-year deals in the future with anybody." Speculation surfaced last year that Disney would move to another studio, especially when Pixar Animation Studios--one of Disney's main producers of animated and family theatrical fare--was considering leaving its distribution deal with Disney. Pixar has provided many major hits for the studio, including "The Incredibles" and the "Toy Story" franchise. For its part, Disney is still attempting to work out a deal with Pixar, an effort pushed by its new incoming chairman, Bob Iger. A McDonald's spokeswoman says talks are continuing with Disney for a possible non-exclusive deal, as well as discussions with other studios. The first DreamWorks film for McDonald's will be a tie-in with "Shrek 3" slated for release in 2007. This will include using the longtime kids' promotional tool, McDonald's Happy Meals. McDonald's has committed to at least three theatrical movies over the course of the two-year deal. Typically, McDonald's might spend as much as $20 million to $30 million or more in media for a major summer or holiday movie, usually the highest of any movie marketing partner. Marketing executives say McDonald's broke ground for other consumer product companies--autos, cell phones, technology companies, and packaged good companies--to also strike major theatrical marketing deals. At the time the Disney/McDonald's deal was made in 1996,the agreement was rumored to be in the $500 million to $1 billion range. Disney was then the primary distributor of kids' and family movies--and was a natural fit for the fast food company whose big consumer base is primarily that of families and kids. But other studios emerged in the late 1990s to compete with Disney for those kinds of movies, including Warner Bros., 20th Century Fox, and the newly formed DreamWorks. McDonald's rivals such as Burger King struck non-exclusive marketing deals with studios--which gave Burger King a greater variety of movies to chose from for its deals. One of those deals was with DreamWorks. DreamWorks Chief Executive Jeffrey Katzenberg was a long-time executive at Disney, steering the company into big-time animation hits such as "The Lion King" and other movies.
A report released Wednesday by the financial management and advisory company Merrill Lynch cited a "media malaise" that had descended upon traditional advertising, and predicted slow growth ahead for the industry in the coming months. The report, co-authored by Merrill Lynch research analysts Lauren Rich Fine, Karl Choi, and Hester Change, predicted a slowdown in magazine advertising during the second half of 2005, moribund advertising activity on the newspaper front, and a marked risk to direct-to-consumer (DTC) pharmaceutical advertising from increased government regulatory scrutiny. Stating that June advertising revenues for newspapers ended up on average in the 2% range--down from 3.0% in April and 2.5% in May and blamed on weak retail, travel, and telecom spending--the report went on to caution that despite rosier predictions from several newspapers for the second half, "we remain concerned about retail, especially in view of the recent closing of the Federated/May merger, and real estate, where comparisons remain difficult." The May Department Stores Co. concluded an $11 billion merger with Federated Department Stores Inc. this month. The news for ad pages in business-to-business magazines also wasn't good. Citing numbers from American Business Media, the report noted that B2B magazine ad revenues grew 3.6% in May on a 0.2% decline in ad pages--with health care the big loser, down 12.0%. Looking at the medical field, Fine concluded: "Given the increased regulatory scrutiny, there has been a pullback in DTC pharmaceutical advertising that is likely to accelerate." An announcement last week by the Pharmaceutical Research and Manufacturers of America (PhRMA) that its Board of Directors had given initial approval to a set of "Guiding Principals" designed to address the concerns of public advocacy groups and legislators regarding direct-to-consumer advertising of prescription medicines was met with skepticism by critics. Advocacy groups such as Consumers Union have been vocal advocates of moves to further regulate advertising for the drug industry, and in the U.S. Senate, Majority Leader Bill Frist has called on pharmaceutical companies to observe a two-year moratorium on direct-to-consumer advertising during a drug's first two years on the market, and also for the Government Accountability Office (GAO) to review the Food and Drug Administration's (FDA) oversight of prescription drug activities, and the pharmaceutical industry's spending on advertising. The Food and Drug Administration Safety Act of 2005, proposed this year by Iowa Republican Senator Charles Grassley and Connecticut Democrat Senator Christopher Dodd, mandates that advertisements for drugs that have been on the market for less than two years and drugs with a known safety risk be reviewed by the FDA before they air to the public. The Merrill Lynch report characterized radio revenue as having remained largely static, a finding backed up by the Radio Advertising Bureau's own findings, which this week stated that "all revenue, local spot, national spot, and total combined local and national spot dollars all remained flat for the month compared to June of 2004." One bright spot in the report came from the big online players, with Yahoo! and Google's combined net online marketing revenue growth of 74% year-over-year and 10% sequentially, although Merrill still estimated global Internet advertising to be $18.3BN or 3.8% of global ad spend.
In the latest round of political debate surrounding the TV ratings business, representatives from Madison Avenue, the TV industry and the research business testified on Capitol Hill Wednesday, stripping away much of their partisan rhetoric and reducing their positions to a few simple themes, mainly whether the so-called FAIR TV Ratings bill would stifle or nurture competition and innovation in an industry that now has one self-regulated monopoly. The chief executive of Nielsen Media Research, and a top agency media buyer, said regulation would stifle the process, while a representative from the broadcast industry, an acknowledged ratings authority, and the head of the industry's ratings watchdog group said it would nurture it. A representative from large Spanish-language broadcaster Univision was "neutral" on the subject. The hearings, which took place in the U.S. Senate touched on all sorts of methodological minutiae that seemed to confuse and confound the Sen. Conrad Burns (R-MT) who presided over the testimony, delving into such details as the fault rates, sampling and cooperation rates that affect TV ratings samples, and the accreditation process that validates it. But the essence of the debate, concurred Tribune Broadcasting CEO Pat Mullen, MRC executive director and CEO George Ivie, and renowned research authority Gale Metzger, is that the TV and advertising industries are dependant on a sole supplier of TV ratings that has been ignoring the self-regulatory process, and undermining the organization created to manage it. "Nielsen has in fact rolled these markets out before audits have taken place," said the MRC's Ivie, referring to local people meter markets Nielsen introduced in defiance of the MRC's Television Committee. "That is a problem. That is problem, sitting in my place, that I don't want to see happen again." In what appeared to be a startling admission, Nielsen CEO Susan Whiting asserted, "We have to use the MRC process and not make it mandatory," revealing what Metzger, a one-time Nielsen rival who created the SMART TV ratings initiative, referred to as "Nielsen's new, more aggressive posture with the MRC." Metzger said this has typically happened during periods when Nielsen faced no competition, and was immune to market pressures, as it appears to be now. He also asserted that regulating the TV ratings process, and making it mandatory to receive MRC accreditation before a service could be introduced or changed, would not stifle competition. "The opposite would be true. It would be difficult to have less innovation or less competition than we have now," he said. Metzger also noted that the "balance of power" in the TV industry has fundamentally changed since the 1960s when the MRC was formed by the industry to regulate ratings following a Congressional review then. Back then, he said, the Big 3 broadcast networks wielded a significant amount of power that could check and counterbalance Nielsen. But he said the fragmentation of the television marketplace has diffused the TV industry's power, increasing Nielsen's marketplace leverage. Tribune Broadcasting CEO Pat Mullen testified that Nielsen submits to the MRC process, "only when it supports its aggressive business strategy." He implied Nielsen does not operate in the best interests of its clients, but in its own business plans. Citing its option to develop a portable people meter system based on Arbitron's technology, Mullen said, "It appears highly unlikely that Nielsen will allow the PPM technology to compete with its LPM service" in the top ten markets where Nielsen's national and local TV business plan is based on using people meters. "Clearly the free market cannot solve this problem, which is a serious one," said Mullen. Nielsen's Whiting maintained that voluntary self-regulation is the way to go, and that making accreditation mandatory would both slow down ratings research innovation and would inhibit new players from entering the market. She said a new code of conduct that Nielsen has been negotiating with the MRC would suffice, and that Nielsen would commit to it assuming other media ratings providers also agreed. "We are working on that with some urgency. We expect to have sign off on that by Oct. 15," added the MRC's Ivie. But the positions of Nielsen's Whiting and the sole representative of Madison Avenue, MindShare President of Local Broadcast Kathy Crawford appeared to be driven more by a sense of urgency for marketplace reasons than by the methodological processes involved. Crawford maintained that the Senate bill would make advertisers "far less willing" to advertise on local TV stations, noting that Madison Avenue has been "waiting 15 years" since people meters were introduced nationally to bring them to local TV markets. "We have the advertiser paying the ultimate price here," she said. Burns adjourned the hearing, offering the representatives to add additional comments to the record if they'd like and by telling them that other members of Congress would likely have additional questions for them.
In its first earnings report since announcing the acquisition of Gruner + Jahr, Meredith Corp., the Iowa-based media company known for its magazines, Wednesday reported records earnings for its fiscal year ending June 30, with total earnings growing 23 percent to $128.1 million and fourth quarter net earnings rose 12 percent to $42.2 million. Ironically, that growth came largely from increased profits within its broadcasting division. The company, which publishes 24 consumer magazines, and owns or operates 14 television stations, cited a rise in its broadcasting profits, which increased 25 percent to $86.7 million. The company's publishing operating profit increased 10 percent to $174.3 million with its operating profit margin improved from 18.1 percent to 19.2 percent. In terms of straight advertising revenue, Meredith saw total advertising revenues grow 4 percent. In the publishing realm, the company's advertising revenues rose 2 percent while in broadcasting the company saw $18.8 million in net political advertising revenues compared with $6.1 million in fiscal 2004. In a related research note, the financial management and advisory company Merrill Lynch concluded that Meredith Corporation's shares, currently being traded at around $8.70, were changing hands at a "rational" level "given the margin expansion potential at both the newly-acquired Gruner+Jahr titles as well as the broadcasting division." Meredith Corporation acquired Parents, Child, Fitness, Family Circle and Ser Padres magazines this year. The note warned, however, that Merrill Lynch analysts were "also mindful of the difficult broadcast comparisons in the second half of calendar year 2005 and a generally weak environment for traditional media advertising" and predicted a modest upside for the shares.
Buoyed by the fact that national theatrical advertising is still a fast-growing advertising business--climbing at 23% to $425 million in 2004--National CineMedia, the movie theater advertising sales company, will re-launch its key 20-minute in-theater entertainment program, called "The 2wenty," as a customized program. Cliff Marks, President of Sales and Chief Marketing Officer of National CineMedia, won't reveal the name or the concept of the show--he will only say that it will be more upscale and customized for a particular audiences, locations, and theaters. NCM is a joint venture of three movie theater owners--Regal Entertainment Group, AMC Entertainment (which recently said it will merge with Loews Cineplex), and Cinemark USA. "The 2wenty" is NCM's key selling outlet for advertisers. NCM also sells in-theater advertising space. By the start of next year, NCM will have over 13,000 screens. Almost 11,000 of those screens can receive digitally delivered content. Those digital screens will be the base for how NCM will customize each show by location, by audience, or by the brand-name of the theater, said Marks. Yesterday, NCM announced it had added 20th Century Fox to its list of major entertainment advertisers. The others include Universal Studios and Sony Pictures Entertainment. NCM also has two TV network partners--NBC and Turner Broadcasting. Each of NCM's entertainment partners produce two-and-a-half-minute entertainment content for "The 2wenty." Other advertising/content time--in more mainstream 60- or 90-second messages--is sold to non-entertainment advertisers. "This is probably our greatest growth area," said Marks. "Package goods and retailers such as Best Buy and Circuit City are advertisers." Other new NCM advertisers include Procter & Gamble, MasterCard, Kelloggs, wireless phone companies, and video game companies. High entertainment quality is necessary to keep theater audiences interested, Marks notes. This is partly the reason that a number of major advertisers have used in-theater advertising to break their initial creative messages, including Nike, Coca-Cola, Ford Motor Co., and American Express. One of those spots from American Express included golfer Tiger Woods in a spoof of the film "Caddyshack." NCM is one of two major players that sells in-theater advertising. Screenvision, the other longtime seller of in-theater advertising, currently is in 14,500 screens.
First, kudos to the Association of National Advertiser's (ANA) task force for embracing a new media metric - engagement - after all these years of supporting reach and frequency. And while it's encouraging that everyone involved - the ANA, American Association of Advertising Agencies, Advertising Research Foundation - appears to be on board in backing engagement, there does seem to be a small hiccup in the process: Lack of agreement on what engagement actually means. Perhaps the confusion lies not so much in the word itself, but in the fact that as a metric, it's being applied to the wrong discipline. Engagement in an advertising message is not the responsibility of the programmer or the media. Programmers have no control over the advertising message itself. As such, they should not be held accountable for how engaging it is. What programmers do have control over is creating great programming so as to draw as many eyeballs as possible to their program. Great programming content, not advertising content, is what programmers should be held accountable for. Engagement in the advertising message itself is the responsibility of the agency that creates that message. This is what agencies should be held accountable for: The emergence of digital interactive media allows exact measurement of both types of engagement. What advertisers should be demanding is an answer to is how to monetize these measurement capabilities. Only by offering the proper monetization models will the industry be able to allow the different disciplines to be held accountable for what they actually have control over. Obviously, many agencies will balk at being held accountable for engagement. It is, after all, a results-based model. And for most agencies, it is far more lucrative to charge their clients for the possibility of success, than it is for the actuality of results. Ironically, the next task for the ANA's task force is to define what engagement, the metric that everyone has already agreed to, actually means. We already know what engagement means. The problem isn't the definition; it's in application. Engagement is not a media metric. It is a metric that measures an agency's value. And, in turn, its worth. By holding programmers accountable for engagement, the ANA and its partners are holding the wrong group responsible.