P&G’S Challenge to ITV

Last week, Procter and Gamble’s UK managing director, Paul Polman, delivered a speech that sent shock waves through the ITV sales houses. We print the speech, abridged, and a forthright reply from Carlton UK Sales.

Last week, Procter and Gamble’s UK managing director, Paul Polman,

delivered a speech that sent shock waves through the ITV sales houses.

We print the speech, abridged, and a forthright reply from Carlton UK


I have been in the UK for about two years. In that time I have heard a

lot about the future of television, digital channels, sports rights, BBC

charters, ITV sales houses, station mergers, Channel 4 funding and

Channel 5 VCR retuning.

I have not heard so much about the needs of the advertiser. Yet it is

the advertisers that pay for commercial television. Although I am

speaking on behalf of Procter and Gamble, I know that there are many

other advertisers that share our views.

In 1996 over pounds 10 billion was spent on all forms of advertising in

the UK. This is a big investment. The cost of advertising has a

significant impact on the cost of doing business. Within advertising,

the most important medium for us is television and it is the inflation

in the cost of television advertising that I will focus on.

P&G’s cost inputs include ingredients, manufacturing, distribution

costs, packaging and, finally, advertising to the end user. There are

differences in the way these costs are changing. But, in general, we are

becoming more efficient. In most cases, our costs are well below the

level of retail price inflation over the past five years. Some costs are

even lower today than they were five years ago. This is important as we

have to improve efficiency in order to compete with other strong

companies and with own-label lines which have a structural cost

advantage as they do not have to advertise. We have to control costs to

make sure we keep prices competitive for our consumers.

The final cost input is the cost of advertising. This has risen more

than any of the other costs over the past five years. It is the notable

exception to an otherwise healthy cost control - sometimes it is three

times the rate of the next highest cost increase. Advertising costs are

out of control, and the primary driver is a problem in the cost of

television advertising.

I see one fundamental problem: it is that supply is being exceeded by

demand. It may sound pretty basic but it is the big problem.

Demand for TV advertising is increasing rapidly. Over the past five

years demand for ITV is up 23 per cent. Demand for total commercial TV

is up 52 per cent. In most normal markets, supply would increase to meet

this demand.

But, in contrast to the steep increase in demand, supply has not really

increased. In fact, supply of advertising impacts has gone down

significantly on ITV. And across all commercial channels, supply is

virtually the same now as it was five years ago - despite a 52 per cent

increase in demand.

This is a recipe for inflation. Over the past five years, television

advertising costs have risen by up to 47 per cent. This is massively

ahead of normal retail price inflation which was at 14 per cent over the

same period. Clearly this is unacceptable to business.

Over the past two years, in many months cost increases have been in

double digits. In some months we have seen inflation increases of up to

26 per cent compared with the previous year. I wonder how many managing

directors among advertisers could increase prices by 26 per cent and get

away with it.

This inflation is bad enough at a national level, but it is even worse

among some important target audiences and in some regions.

This is not good for business and it is not good for the British


There are three ways in which it is bad for the competitiveness of Great

Britain Plc.

First, it is an inflationary pressure. Excessive inflation in

advertising costs puts pressure on manufacturers to increase prices. If

the manufacturer is in a very competitive market, then it cannot

increase prices. It therefore has to cut back on advertising and, here

we come to the second point, this holds back economic growth. If

advertising is less affordable it restricts new market entrants and

existing companies from trying to stimulate demand for goods and

services. This holds back investment in industry and employment.

Third, I hear politicians say that Britain is the enterprise economy of

Europe. In most areas it is doing a great job. Britain has deregulated,

encouraged competition and opened up markets. But in the TV advertising

market it is going in the opposite direction to the other major European

countries. Advertising in Britain suffers from an overly regulated


The extent of the restrictions on supply in the UK TV market is

highlighted by a comparison of the amount of commercial television that

the average person watches in different countries. The UK is

considerably behind all the other large European countries. Businesses

in the US and Japan have the best access to commercial television.

So here we are in Britain, in the free market enterprise centre of

Europe, and yet we have the least opportunity to advertise our goods and

services. This situation has to change.

Many British TV stations are currently confined to these islands. In

contrast, many major advertisers are European or global companies. The

managers of these companies are increasingly evaluating the relative

returns on investment at a European or even global level. This affects

investments in advertising upweights and new campaign initiatives. It

also affects decisions on new brand launches and test markets. With the

current inflation in UK media, it is becoming harder to justify

investment here.

Few people in the media are talking about this at the moment. But watch

this space - it will become a bigger issue in the future.

As television becomes more expensive, I am constantly challenging my

managers to be more creative and to find more efficient ways to

communicate with our customers. I am sure the top managers of our

competitors are doing the same. The consequence for TV stations is that,

through increasing prices, they are creating rival marketing media which

will grow to take a greater share of the advertising pot.

The structural issues restricting supply in the UK advertising market

are: an inward-looking TV network; the way the BBC distorts the market;

and the existence of unnecessary regulations and idiosyncracies. I will

deal with each of these issues in turn.

There are a lot of good ITV companies. But if one looks at ITV in

totality it can have a tendency to be a bit inward looking.

Fundamentally, the root cause of this is a lack of competition.

We may have lots of TV stations but we do not have a truly competitive

market. Despite cable and satellite, currently 76 per cent of homes

still only have a choice of two commercial channels. And between these

two, ITV dominates with around 75 per cent share of viewing. ITV has a


This has sometimes made ITV inward looking. On occasion, some regional

ITV stations are more concerned with how to get a bigger share of the

total ITV revenue cake instead of thinking how they could make a bigger

cake. In TV the chief ingredient for a bigger revenue cake should be a

bigger audience.

So how do ITV companies increase their audiences? I do not claim to know

all the answers to this. But if I look at the current situation with my

own business experience, I would offer a few suggestions. We need a

better product, better marketing and a change of mindset.

The ITV product is its programming, and ITV continues to lag behind the

BBC. Of course, ITV has some great programmes that deliver huge

audiences, such as Coronation Street, but ITV does need to look at where

is it strong and where is it weak. ITV does well among more downmarket

and older consumers.

However, it needs to improve programme appeal among younger people and

among more upmarket households.

On marketing, there has been a lot of debate in the trade press about

the recent efforts by the ITV network to promote itself. I remain to be

convinced on how effective the rebranding and advertising campaigns have

been so far. But at least I am pleased that ITV is taking marketing much

more seriously. I also understand that it plans to invest more in

marketing in 1997.

However, going back to basics, the first thing I would get straight is

who ITV should take business from. My view is that there is only one

really important target: the BBC. ITV needs to set its sights on the BBC

and aggressively win over its audience. That will require a change of


Too often we hear that ITV has to manage decline. That is the wrong

mindset to grow audiences for programmes and for advertising.

Just because a brand is big and facing new competition does not mean

that it has to decline. Did Coca-Cola throw in the towel and manage

decline when Pepsi came along? Of course not. But advertisers also want

more competition and choice in commercial TV.

Advertisers welcome the Channel 5 initiative and wish the station


However, anyone who says that Channel 5 will be enough to solve the

structural advertising supply problem needs to look more closely at the

history of previous channel introductions.

In 1976 commercial TV had 52 per cent audience share - 20 years later it

has barely increased at 56 per cent. So, despite all the TV channel

introductions, the amount of commercial audience available has not

changed much.

The introduction of new channels has largely had the effect of

fragmenting the commercial market. New channels have not grown the


The BBC remains very strong with a 44 per cent share of all viewing.

That brings me to the second structural issue affecting advertising

supply in the British market, that is, the protected position of the

BBC. It has a guaranteed income stream of more than pounds 1,800 million

from compulsory licences, with much of that going on its TV channels.

With this amount of subsidy it is no wonder the UK has a distorted TV

market compared with other European countries. The fact that advertisers

are barred from any access to this leading channel explains many of the

structural problems in the TV advertising market.

It is for the politicians and the British public to decide whether they

want to continue to ban advertisers from the BBC and pay a compulsory

licence fee forever. But it should be recognised that one of the effects

of this arrangement is to put an artificial limit on the UK’s

advertising market, which is bad for the economy.

When I watch the BBC, I see that it is running advertising. It quite

often runs several minutes an hour of self-promotion and advertising for

its own products. At the moment it is even running a classic TV

advertising campaign to justify its unique funding arrangement.

Increasingly, it is also promoting its commercial ventures such as its

Clothes Show and Top Gear magazines.

I am sure many other advertisers would support the Incorporated Society

of British Advertisers’ proposal to the National Heritage Committee.

This is for the introduction of a mixed economy on the BBC. The BBC is

commercial, so why not give British business an opportunity to share in

its commercial arrangements? If just five minutes per day of BBC peak

airtime could be switched from BBC self-promotion to commercial

advertising, it would generate sufficient revenue to cut the licence fee

by at least pounds 10.

The final issue I want to raise is unnecessary regulation and the

idiosyncrasies that restrict and cause inflation in the advertising

market. There are three important examples: scheduling restrictions,

restricted advertising minutage and station average price.

Advertisers want TV companies to have freedom to compete and to generate

commercial audiences. It seems amazing that ITV has more restrictions

than the BBC on what it can and cannot do when it comes to


ITV should have more freedom to make scheduling decisions it believes

will deliver commercial audiences.

The restriction on advertising minutage is also unhelpful. The European

Union directive recommends member countries should allow nine minutes

per hour of advertising. Yet we have more restrictions in the UK.

ITV, Channel 4 and Channel 5 are only allowed to sell an average seven

minutes per hour on a daily basis. Given the current imbalance between

supply and demand, it is not surprising that ISBA has proposed

advertising minutage should be increased in stages to nine minutes.

I have listened to the debates on minutage and have a solution that may

be even more flexible and could suit all parties. For those TV stations

that are still frightened to take any risk on minutage, I will make a

personal suggestion.

I suggest TV companies should at least support a change in the

regulations to keep seven minutes as the minimum daily average but allow

the maximum daily average to go up to nine minutes. That would give TV

stations and advertisers freedom to balance supply and demand. Market

forces will provide the optimum level of advertising. It is more

flexible and may provide a solution we can all support with the ITC.

The final area that needs change is the current station average price

trading mechanism. P&G buys advertising in over 140 countries around the

world, and I can honestly say I have never seen such an odd system.

Imagine placing an order for an important item in the manufacturing

process without knowing how many you will get and what the cost will be.

Oh, and if the supplier delivers fewer items than you want, then you

still have pay him the full amount. Yet this is effectively what happens

in television advertising.

I also wonder how many managing directors have been fooled by a slick

agency media buyer into thinking they have got a great deal because

there is a big discount against station average price. The truth is that

station average price is a fairly meaningless figure.

Station average price causes inflation that distorts the normal market

system of supply and demand. We should give up this misleading and

inflationary trading mechanism.

Finally, what can television stations do to meet the needs of


They should give us increased supply of commercial audiences. Increasing

commercial channel choice is good, but what will make the difference is

ITV and other commercial stations growing their audiences. We also need

to challenge the unnecessary regulations and practices that limit supply

and cause inflation. Increasing advertising supply and freeing up the

market is good for the advertiser. What is good for the advertiser is

also good for the economy. Businesses can only grow if they are able to

advertise their goods and services cost-effectively.


I would like to state at the outset that we always take the views of our

customers seriously. P&G has obviously given the subject a lot of


Paul is absolutely right. Currently there is extremely strong demand for

the TV product, but three or four years ago supply outstripped demand

and we had a period of deflation.

Demand for all TV is up, not just for ITV. Indeed, all advertising media

are experiencing significant growth.

We are as concerned as Paul is about the loss of audience from the

16- to 34-year-old group, although some preliminary research into the

Barb sample suggests some of our audience figures for 16- to 34-year-

olds may be underestimated, and we are conducting a panel investigation

into this.

Advertisers are spending more in the South. However, this is because of

the strength of the ITV system. Advertisers can choose regions from an

area the size of Border to that of Carlton.

While I agree with Paul that the capital cost on ITV remains high, the

explosion of new channels makes it more affordable for advertisers that

are new to the medium. An example would be the growth of golf equipment

advertisers on Sky Sports and of direct response on the Carlton Food


I take very seriously Paul’s point that many companies are now global

and are making intra-country decisions - we have to become more adept at

presenting the UK case at a national and European level.

Paul’s point about rival media taking a greater share of the advertising

pot is a real one. However, some major fmcg brands are returning to TV

as the ultimate branding medium.

I agree that the main competition for ITV is BBC1 - and we beat it hands

down. The issue on the carrying of advertising by the BBC must form part

of a wider debate. If the BBC took advertising it would destroy the

quality of TV production in the UK. There is simply not enough revenue

to go around.

Three clear forms of funding have developed - the licence fee,

advertising and subscription. These fit very comfortably together. The

ITV goal is always to grow the audience. Given our funding mechanism, we

cannot set out with any other. At the same time, with such competition,

audiences are bound to fragment.

Regarding Paul’s Pepsi and Coca-Cola analogy, ITV has not thrown in the

towel - far from it. Look at the product ITV has bought in the past 12

months to maintain its brand leader position.

Regarding extra minutage, Channel 5 says it is launching on 30


This will bring an extra 60,000 minutes per year and will have a

deflationary effect on airtime prices. However, this will only be the

case if advertisers do not fall into the trap of buying a Channel 5

price discounted from the ITV price.

I am concerned about Paul’s proposals for extra minutage. I can see an

horrendous situation where some networks and TV regions are playing out

extra time and others not and a major issue could develop on what

constitutes extra demand and when extra airtime should be played


I do, however, have one solution. It is to move some daytime airtime

into early evening, up to 19.30. Early evening is already light in

airtime as we have moved so much into prime peak where there is no more


This would not damage our promotional strategy in the way an

across-the-board increase would and, with Channel 5’s extra minutage, it

may help Paul.

Station average price works for my company. We have delivered all of our

deals effectively under it and it is a very transparent method. If it

goes, then it must go by evolution, not revolution, but I have never

seen any suggestions for what could replace it. I am not prepared to

take a lemming-like leap into the unknown. Why? Because of Yorkshire


However, as ITV prime peak time generates more demand, I expect it will

be sold separately and the rest of the airtime will be sold on an

average price basis. The good news is that ITV has more event

programming and the pace of this evolution may be quickened as a


What is clear from Paul’s speech is that we have failed to communicate

clearly to the senior segment of our advertiser audience what the ITV

strategy has been over the past few years and I apologise for that. This

has heightened the need for us to get our own ITV marketing director as

soon as possible.

Editor’s comment

Procter and Gamble does not make public pronouncements very often. It’s

just not the company’s style. So when a figure as senior as Paul Polman,

P&G’s UK managing director, delivers as frank and detailed an assault on

ITV and, to a lesser extent, the rest of the British TV industry, as he

did at the ISBA policy conference last week, you can be sure it has all

been plotted carefully in advance. One might also suspect that at least

some of the big sales houses were forewarned of the contents of Polman’s

speech, judging by the alacrity of their responses. After all, the

issues are old chestnuts that have been knocking about for years without

changing the status quo. What has changed? Well, as ever with P&G, it is

worth trying to work out the subtext of what the company is saying.

In this case it might run something along these lines: because the cost

of TV airtime has soared above P&G’s other costs over the past five

years, and because the ’odd’ buying system is so inflexible, it has

become increasingly difficult to justify the costs of testing new

products in the UK market.

This means the UK company becomes more reactive and less influential in

the P&G universe which, in turn, has an impact on individual


P&G managers are people too, you know.

The minutage debate in Campaign

Nov 94: Dominic Mills argues that the television industry is mature

enough to extend ad breaks and reap the rewards.

’Deregulating TV airtime would very probably kill off any overdealing

problems’- Mills

Feb 95: Phil Gullen of Carat Research says that ITV should combat

inflation with ’gripping programming’.

’They should have four breaks an hour, instead of three ... that would

offer better value’ - Gullen

April 95: Martin Bowley sets out ITV’s stall on extra minutage.

He warns of lower audiences and compromised quality.

’Audiences have dipped in the past year but you have to look at how the

whole year will pan out’ - Bowley

June 95: Adrian Burchill of the Media Centre believes that research,

co-funded by media owners, is the way to resolve the issue.

’Research is crucial; there is little point in getting more impacts if

their value is diminished’ - Burchill

Dec 95: John Blakemore of SmithKline Beecham confirms that ISBA is

preparing to lobby the ITC.

’Extra minutage has always been top of our agenda and it’s still a hot

issue’ - Blakemore

June 96: The ITC’s director of advertising and sponsorship, Frank

Willis, considers the issue but offers a warning.

’A solution that reduces programme lengths without improving budgets

would have no benefit’ - Willis.