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
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
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
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
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
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
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
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.
CARLTON RESPONDS TO P&G AND OFFERS ITS OWN SOLUTION
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
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.
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
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.