Despite NBC's decision to back out of a landmark deal that would have brought liquor advertising to network TV, viewers are still likely to see significantly more spirits ads in coming years.
NBC walked away from a share of $500 million over five years that the North American division of spirits marketer Diageo planned to spend for ads on that network and at least one other, sources with knowledge of the deal say.
Diageo is now looking at reallocating that budget to buying ads for Smirnoff and its other premium brands on local broadcast affiliates and cable networks.
NBC bowed to pressure from anti-liquor interest groups and a threat of regulation from some members of Congress. While there is no rule prohibiting liquor ads on broadcast network TV, an unwritten agreement has kept such advertising off, while ads for beer and wine are carried. Liquor advertising has aired already on some local broadcast affiliates and on a few cable networks.
But Diageo remains committed to gaining more broadcast access.
"NBC's decision is a temporary setback in our long-term plan to gain the same sort of national television advertising access for our spirits brands as the brewers and vintners have for their brands," said Paul Clinton, president and chief executive, Diageo, North America, speaking to investment analysts.
"The decision does not fundamentally affect the marketing plans for our spirits brands."
He said "discussions continue" regarding advertising on national networks. Meanwhile, Diageo will continue to advertise on at least 200 local stations and cable outlets that accept its ads. And Clinton said in his speech that the company has access now to another 300.
A shift of big bucks to these outlets would be a setback for the print advertising industry, which has benefited from the lack of TV ad opportunities for spirits.
But it would be a windfall for the cable industry, which faces an expected 4% decline in ad revenue in 2002, according to The Jack Myers Report newsletter.
"Any positive signs are important," editor Jack Myers says. "That could go a long way for a lot of cable networks."
In the long run, however, trying to get national ad exposure by piecing together local and cable ad buys will be costly for Diageo, which would pay an estimated 30% to 40% premium over more cost-efficient national network advertising.
"We have cable systems that cover 85% of the country," says Jon Mandel, chief negotiator for Diageo's ad-buying agency, Mediacom. "But distilled spirits pay more for their advertising" than beer and wine competitors.
"We're at an economic disadvantage," he says.
Brewers spent nearly $1 billion on national TV ads last year. Access to national broadcast advertising for liquor companies would level the playing field, Mandel says.
That's a major concern for companies fighting for a share of the nation's alcohol consumers, a market that is growing slowly. Clinton estimates the compound average growth rate for beer, wine and spirits will be only about 2% over the next five years.
Theresa Howard, USA TODAY. April 7, 2002
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