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Implications of new product placement regime for lawyers

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Thayne Forbes, joint managing director of Intangible Business, discusses the implications of new product placement regulation for lawyers.

On 28 February 2011, viewers of the This Morning breakfast show witnessed the first paid-for product placement on UK TV – the Dolce Gusto coffee machine. This cost NESCAFÉ a reported £100,000, but what return on investment (ROI) did it generate, how was the price calculated, what contribution did this make to brand value, and what else do you need to know when advising clients on using product placement?

After years of the contradictory situation whereby product placement was allowed on UK TV on imported shows and in films but not on UK-made programmes, Ofcom relaxed the rules at the end of February. Don’t expect to see a flood of Stella-swigging in the Rovers Return or Tinky Winky scoffing a packet of crisps in Teletubbyland however. Programme makers must comply with Ofcom’s restrictive rules.

The Ofcom rules
The rules list a number of products that cannot be placed, such as cigarettes, alcohol, food and drink that is high in fat, salt or sugar. Gambling, prescription medicines and baby milk is also prohibited. Products may not be placed in news programmes, children’s shows, religious, current affairs and consumer advice shows made for UK audiences. Suitable programmes therefore include films, dramas, documentaries, entertainment shows, sports programmes and TV series such as soaps.

There are further exceptions. Under the terms of the BBC Agreement product placement is not allowed in programmes made for the BBC licence fee funded services. There must be ‘editorial justification’ for the placement and ‘undue prominence’ can’t be given to the product. Additionally, the TV channel must display the product placement logo at the beginning and end of the programme and after any advertising break.

Brands can still feature without being paid-for - appearing by chance or as props - but this new regulation opens up a range of new opportunities for brand-owner clients who will need advice to navigate, negotiate and manage the process.

Pricing mechanisms
There are a number of considerations when looking at pricing, all of which will impact the price your client pays for the placement. Factors influencing price include the number of expected viewers, the timing of the show, how often it will be repeated over its lifetime, category exclusivity, the density of products shown, the brand’s compatibility with the show, its visibility, the extent to which it is mentioned and historical comparisons. These metrics are similar to inputs used in pricing models for advertising slots or sponsorship opportunities but being a more immature and less commoditised market there will inevitably be greater elasticity, and therefore negotiation from the rate card.

Monitoring the impact
More sophisticated metrics will look at the context of the placement and elements such as brand sentiment. Studies exist on the value of product placement by reference to cost substitutes, rather like the typical PR analysis which calculates the value of the equivalent advertising space times by a multiple of, say three, to take into account third-party endorsement value. A step beyond this and brand owners will be measuring product placement’s contribution to brand and business value, through increased sales, profitability and brand equity.

The impact the new product placement regulations will have on brands is as yet largely unknown. Research conducted monitoring the Dolce Gusto placement on This Morning found it appeared on 110 separate occasions on the first 14 days with a media value of £525,000, an average of £8,964 per appearance. If the exposure remained constant for the duration of its three month period, NESCAFÉ would see a media value of £525,000, an RIO of 5:1.

There are other ways of amplifying this impact. Recall has been found to increase by 20% where placements preceded commercials. So firms sponsoring or featuring in the advertising breaks surrounding the shows their products and services are place in, will receive additional impact. The product placement can be integrated into other marketing activities, such as online social media campaigns or PR – which NESCAFÉ used very effectively with the Dolce Gusto placement.

Market potential
Media and entertainment legal teams will be expected to advise clients on the negotiation of these deals. The product placement market is expected to be worth in the low tens of millions in 2011. However, as brand owners, TV networks and programme makers become more used to product placement and integrating it into schedules, the market is forecast to increase to over £100m. This accounts for nearly 1% of total UK advertising and 3% of TV advertising.

In the US, revenues from product placement have grown steadily for three decades, grossing $3.6bn in 2009 and expected to reach $6.1bn in 2014. New technology could increase revenues and the effectiveness of product placement quite significantly.

In the publishing sector media owners are experimenting with ways of retailing products they feature. For instance, Hearst Magazines, publisher of Cosmopolitan and Esquire, will introduce a series of e-commerce partnerships this year and Condé Nast’s lead title Vogue, partnered with Yoox last month, an Italian fashion retailer. This trend is fuelled by magazines being increasingly read on portable devices such as mobile phones and tablet computers; the growth of online retailers such as ASOS and Net-A-Porter; the decline of traditional advertising and subscription revenues; and the threat from brand-owners launching rival publications.

There are lots of parallels with the TV industry here as TV viewing moving more online. This will make product placement even more attractive and its impact immediately quantifiable through click-through rates and direct purchases.

Conclusion
There is no doubt that Ofcom’s relaxation of the product placement rules is generating considerable interest from brand owners. This provides an opportunity for legal teams to advise on its implementation to deliver commercial opportunities for clients. If done effectively product placement will build the brand’s awareness, increase consumers’ understanding of the brand and make it more relevant within its target audience – key contributors of brand value. The legal role is central to this, from ensuring contracts are in place, a fair price is negotiated and any disputes are resolved. An understanding of the mechanics and implications of product placement is therefore needed to continue providing clients with up-to-date, commercial advice.

May 2011 ● Legal

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